Meanwhile, state and local governments have cut more than 600,000 jobs, which along with higher tax revenues have markedly improved the fiscal condition of even big spending states like New York and California.
That is good.
Unfortunately, Shilling told me, U.S. households are recovering much more slowly.
Because of the housing and credit bubbles, total household debt (including car loans, credit cards, student loans and home mortgages) doubled from 65% of disposable personal income (DPI) in 1980 to a mind-boggling 130% in 2007. (The chart below was provided by A. Gary Shilling & Co.)
Okay, so 103% is not so mind boggling? I added the arrow to your (actually the Fed’s) chart. Looks like we’re just recovering back to trend… which is up.
Similarly, the savings rate dropped from 12% of DPI to a minuscule 2% in 2005. Who needed to save money when you could refinance your mortgage and spend your home equity?
The savings rate is up to 5%, and total household debt has fallen to 103% of DPI, Shilling said. Usually it takes a decade for consumers to work off the debt they racked up during a boom.
So we are extrapolating today’s metrics into the future, to complete the typical 10 year recovery in the consumers’ collective balance sheet. Okay, I get it. Steady as she goes.
But now, he said, “you’ve been at this process for six years. At this rate, it would take a lot longer than four years to complete. … It’s a long way from where I think it’s going.”
Consumers’ deleveraging and stagnant middle-class incomes have depressed consumer spending for all but the affluent. “You no longer have the consumer spending like a drunken sailor,” said Shilling.
No, he’s just spending like a sailor who’s still on his first bottle of rum. The improvement as a percentage of income all the way down to 103% makes an assumption of continued economic strength and hence the ‘jobs’ recovery.
Here’s the thing Howard. This particular gold bug who’s writing up this wise guy rebuttal to your Bug-baiting puff piece caught the ramp up in the Semiconductor equipment sector (as noted at the time in NFTRH), projected coming strength in manufacturing and by extension ‘jobs’. We also noted that this was most definitely not a positive fundamental backdrop for gold.
Enter you and your kind, who have held court ever since admonishing the lowly gold bug for his utopian desire for more honesty (and less debt) in the system. This brings us right up to the current moment, when you are allowed to write articles like the above at a major financial media outlet, servicing (read into that word as you will) a trend following public.
Taking it back full circle, and in consideration of the QE3 exit and stronger US dollar, which we also projected before the herd got the story, we are now watching for what is ahead, not lazily extrapolating current trends. Here Howard, I’ll give you one such item to watch so that this time you may see (as opposed to react to and tout) future trends.
The Semiconductor equipment ramp up (and associated book-to-bill ratio) launched our view that US manufacturing would strengthen nearly 2 years ago. Today, based on the data I compiled (and graphed) from Semi.org, we have a different signal that could be gathering itself.
Of course, tomorrow is ‘jobs’ day and it could well be strong because even if the Semi’s do go on to project a coming easing in manufacturing, these things do not filter down in real time, especially in what is still a heavily consumer driven economy.
But articles like the above are little more than rationalizations for the current trend. Perfect for mainstream media, and nearly useless for anyone looking ahead (CBO projections aside). To be sure, the trend is Howard’s friend right now and writers like him use the power of that trend to full effect while it’s at their back.