An article today titled ‘Business Outlook: Why Consumer Spending Won’t Drive a Recovery’ says in its sub-title “(U.S.) Households are paying down debt and rebuilding their nest eggs, so they’re not spending. Still, that’s unlikely to thwart a modest economic upturn”.  The article says:

•    wealth losses since early 2007 totaling $13.9 trillion Q1 2009, and in April U.S. consumers saved 5.7% of their earnings, the most in 14 years.

•    (U.S. consumer) liabilities have declined to 131.1% of after-tax income in Q1 from 138.6% in Q4 2007, in circumstances where based on 1990’s trends the ratio would be about 110% implying U.S. households still have about $2.2 trillion in excessive debt they need to eliminate;

•    households have been deleveraging for more than a year, and the saving rate may be close to topping out resulting in a conclusion that ongoing deleveraging is unlikely to prevent at least a modest upturn in the economy Q3 and Q4 2009;

•    (U.S. consumer) wealth losses seem likely to slow as well, with household net worth—assets minus liabilities—falling $1.3 trillion in Q1, 50% of the average 2008 quarterly decline;

•    given the stock market rebound in Q2, economists at UBS estimate net worth is on track to increase by some $3 trillion this quarter, the first gain in two years;

•    plunging U.S. household wealth is the chief reason households are saving more of their income, and if the decline in net worth is bottoming then the increase in the saving rate may be about over, too. The ratio of wealth to income, which tends to track the saving rate, is now about where it was in the mid-1990s, when the rate was about 5%;

•    (U.S.) consumer spending has stabilized this year despite the ongoing realignment in household finances; and,

•    much will depend on the labor markets. The slower they heal, the more drawn out the process will be, and the less (U.S.) consumers will be able to contribute to the recovery.

From my perspective this article sets out a lot of facts and surmises that don’t gel to a conclusion that ‘Consumer Spending Won’t Drive a Recovery’.  First, Q2 isn’t yet over and I see no assurance that, depending on statistics released over the next few months that  U.S. and world equity markets will hold the gains made in Q2 to date over the next several months.  Second, I believe – and have been repeatedly saying on this blog – that job loss and gain statistics are the principal ‘go-forward driver’ of U.S. consumer spending.  Deleveraging ultimately ought to look after itself, but if the total amount of U.S. consumer spending dollars derived from employment income continues to drop so too must the total number of dollars spend by U.S. consumers.  I would not be taking the headline or what I see as the optimism reflected in this article ‘to the bank’, but suggest you read it in its entirety by clicking here.

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An article today titled ‘Youth unemployment fans social ills of crime, unrest and extremism’ says that “While all forms of unemployment are bad, youth unemployment is probably the most searing because of its corrosive effects throughout society” as (presumably among other things) unemployment adds to the risk of drug abuse, criminality and, ultimately, incarceration.  The article quotes youth (ages 15 – 24) current unemployment statistics in Britain (16.5%), France (20.4%). Qatar and Saudi Arabia (each almost 25%).

Some months ago I wrote a blog on this issue.  As I have said in other posts I believe ‘old sayings are old sayings because they have stood the test of time’.  One old saying is ‘idle hands are the devil’s workshop’, and I think that is particularly true in the case of young  people whose value system and living habits are ‘a work in progress’.  The young people who in the recent past have rioted in Paris may be a precursor for what may happen in other cities and towns if there is not productive work available for them.  In the current economic environment I consider this worrisome – and think youth employment should be an extremely high priority with the governments of all countries.

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A New York Times article today titled ‘Looking to Buy Gold? Grab a Sack of Quarters First’ says that a German company is building vending machines that will dispense gold coins.  The company apparently is targeting a ‘machine franchising’ model that will enable customers to buy 1, 5 and 10-gram pieces of gold, and 1/10 ounce Canadian Maple Leafs and South African Krugerrands.  A one-gram piece, the size of a child’s fingernail, now costs about 30 euros, or U.S.$42.

This is interesting, and frankly to some degree amusing – at least to me.  The real question is:  Is this a relevant ‘sign of the times’ or not?

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Three articles today respectively titiled ‘May housing construction jumps by 17.2 percent’, ‘U.S. mortgage applications plunge to near seven-month low’, and ‘Industrial activity dips more than expected in May’ collectively send me ‘mixed messages’ on the direction of the U.S. economy.  In order:

•    the first article reports the U.S. Commerce Department said yesterday that May new home construction increased by 17.2% over April numbers, and that building permit applications increased month/month by 4.0%.  That said, the article says new home construction was none-the-less down year/year by 45.2% in May;

•    the second article reports the U.S. Mortgage Bankers Association said today the seasonally adjusted mortgage application index for the week ended June 12 dropped by 15.8% to 514.4, the lowest since November 21, 2008; while

•    the third article reports U.S. industrial production dropped 1.1% in May when economists expected it to decline by 0.9%.

It strikes me that anyone looking for ‘green shoots’ in these collective statistics likely is looking for them in the equivalent of an economic ‘junk yard’.  If green shoots do exist it seems to me, like plants in a junk yard, they may not flourish for long in a toxic environment of U.S. job losses, increased consumer savings, and ever increasing National Debt.  I suggest readers visit the referenced articles in turn and reach your own conclusions.

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