Friday, May 28, 2010
Heh, Reality Chomps Yet Again
So, today's s personal income and outlays report covers April, and Real and Current PCE grew at 0.0%. This will be revised next month. April was rough on the piece of the retail survey that includes grocery stores, but May has been much worse. So I do not think PCE will come in very well for this month.
That will leave us with a much lower proportion of growth in second quarter GDP, especially since inventory replenishment is about over, whereas in the first quarter it was still a decent growth factor.
One red flag that should have alerted everyone to this in the Q1 GDP (second revision text or pdf) was the percentage growth in PCE that was in durables. On a real basis, motor vehicle spending didn't even grow, and again, on a real basis, growth in non-durable goods did not grow. But at the same time, spending was outrunning incomes.
If you look at H.8 (go down to deposits and look at the Other Deposits) you can just see what happened. People got their tax refunds and spent them. In April, growth in Other Deposits ticked back up, which is good considering that a lot of people who owe on their taxes are writing out checks.
From here on in, economic growth is tied to growth in net exports and growth in real personal income. According to tax receipts, there has been a change and the job market and self-employment market is slowly resuming.
The difference between this recession and the previous three is that we are going to get very little growth from consumer lending on net, whereas in the others, once jobs improved we got quite a big bounce. The PCE bounce we have been seeing is from restored confidence - people that had jobs and savings who felt that their own futures were more stable and so resumed spending. But the proportion of the population with steady incomes and significant liquid savings is less than 50%, so it will take quite some time for savings to rebuild and hefty spending growth to resume.
I still maintain that the economy is growing, but it is doing so in a very deflationary way - consumer prices are still slowly sliding down the hill in most categories, and real income growth is concentrated in deploying marginal labor, which is basically the depression emergence pattern.
PS: Trend growth REALLY IS under 2%.
PPS: Q1 bank delinquency and charge-off rates are out. I linked to NSA rates because when you are off the charts like this the seasonal adjustment can be terribly misleading. If you want the SA rates, the page is here.
Residential delinquencies rose to 11.36%, annualized. The heart flutters, the jaw drops, I cringe in awe. Commercial (mortgage) delinquencies rose to 9.10%. Total loans and leases delinquencies rose only marginally from 7.43% to 7.49%. Credit card delinquencies are way down, but that's because a lot of it has been already written off. Charge-off rates dropped significantly, but it appears likely that they will rebound from delinquencies. This is the second wave - the first wave was bad credit, the second is bad credit compounded by income factors. Charge-offs for property loans usually rise for years after a recession ends.
Maybe I should stop reading financial reports and read Georgette Heyer novels or technical books for a while. This is making me nauseous. I really don't think slinging down the Prozac is going to help me any.
So I think I'd better stick to the financials. The great thing is that no more will be written this weekend, so I can catch up a bit.
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