Economy | timiacono.com

Consumer Debt Increase Fastest Since 2007

This New York Fed report(.pdf) showing aggregate consumer debt jumped $241 billion to $11.5 trillion in the fourth quarter, the biggest increase since the third quarter of 2007, has received a lot of attention today and was welcomed news by those who think that buying things you don’t need with money you don’t have is how the U.S. economy should operate.

Now, one could argue about whether you need a college degree these days, but there’s little question that few have the money to pay for it as evidenced by the bulging red bar segment in the lead graphic from the report below. According to this item by Wolf Richter, that red bar is enslaving an entire generation and, if so, that can’t be good.

The New York Fed’s Liberty Street Economics blog noted the dramatic rise in outstanding debt by said enslaved generation in this story earlier today.

I suppose when student loan debt  really becomes a problem, someone will let us know.

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The Demise of U.S. Economic Growth

In Northwestern University economist Robert J. Gordon’s latest paper on why growth will slow “The Demise of U.S. Economic Growth: Restatement, Rebuttal and Reflections(.pdf)“, four factors are cited for why the red curve is likely to stay below the green curve in the graphic below – demography, education, inequality, and repaying debt.

Later in the paper, just after the discussion on debt and how the Congressional Budget Office is hopelessly optimistic about the return of stronger growth that will ease the burden of that debt, the red line is projected to the right and ends up at an uninspiring $86,000.

Gordon on Growth

Note that it is GDP per capita that is used here rather than GDP (per nation, if you will). The latter grossly distorts the underlying health of an economy simply because it is heavily influenced by population growth. In the U.S., population growth has slowed from almost two percent to less than one percent over the last half century, reason enough to doubt any return to four percent annual real growth as some still fancy.

Also note that the impact of technological innovations on growth is not now and will probably never be as profound as that seen many decades ago. The introduction and widespread use of electricity, automobiles, and the like during the left portion of the chart above were far more significant than anything seen in recent decades and, absent the arrival of friendly aliens willing to share, we probably won’t see anything like that again.

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Economic Confidence and Politics

More evidence of a polarized nation comes via this Gallup survey data that combines economic confidence by state with a range of questions on political views. As has been seen in the detailed weekly confidence data in recent years, with the exception of scandals for the party in power, it seems nothing will boost the confidence of the the party not in power.

Economic Confidence Obama Disapproval

The flip side of this is that – and this should come as no surprise – most of the highest-ranking states in economic confidence are in the top 10 for presidential approval.

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Manufacturing Slows, New Orders Plunge

The Institute for Supply Management reported that U.S. manufacturing growth saw its sharpest slowdown in almost three years as national factory activity fell from 56.5 in December to 51.3 in January, the lowest level since last May. More importantly, the key leading indicator for new orders tumbled from 64.4 to 51.2, the sharpest decline sine 1980.

These readings were both above 50, the mark that separates expansion from contraction, but they signaled an abrupt change in trend that has clearly rattled financial markets.

ISM Manufacturing index

Other readings included a sharp decline in the production index, from 61.7 to 54.8, and a smaller drop in employment, from 55.8 to 52.3.

Inventories and backlogs contracted at a faster pace than the month prior and the prices paid component jumped from 53.5 to 60.5 in what was about the most negative report imaginable for a manufacturing sector that is still expanding.

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