The US consumer spending story

Continued 'unexpected' volatility appears to be the theme of this ongoing 'new normal' economic cycle......

NOT GOOD: The US consumer spending story everyone's been jazzed about is fizzling out 

American consumers are feeling increasingly pessimistic about their future spending.

One of the questions on the New York Fed's monthly Survey of Consumer Expectations asks respondents how they expect their household spending to change over the next year. This has been a very jumpy indicator in 2015, seesawing back and forth before dropping over the summer and hitting a new low in September.

As of September, the median household sees its spending growing just 3.18%, the lowest level in the survey's two year history. 

Consumers are a huge part of the American economy, with household consumption making up about 68% of GDP. The decisions consumers make about spending have a huge impact on the overall economy.

Many economists have been optimistic that the US consumer would be able to offset weakness overseas. That's what makes this survey particularly discouraging as the global economy slows.  

FNMA outlook

Economic Growth Outlook Less Upbeat for the Second Half of the Year

Katie Penote   August 24, 2015

WASHINGTON, DC – The first print of second quarter economic growth was weaker than expected, and its composition presents a less optimistic outlook for the rest of the year, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research (ESR) Group. The federal government’s upward revision to first quarter growth was essentially offset in the second quarter, due in large part to a drop in nonresidential investment in equipment and structures. These factors, coupled with continued headwinds from a strong dollar and renewed declines in crude oil prices, are expected to continue to pose challenges in the current quarter, although consumer and government spending will likely provide support. Housing also is expected to contribute to 2015’s growth, with year-to-date main housing indicators staying well above year-ago levels.
“While consumer spending growth picked up as we expected in the second quarter of this year, other components disappointed,” said Fannie Mae Chief Economist Doug Duncan. “However, incoming data suggest some upward revisions may be in the cards for the second quarter. Furthermore, job creation remains steady, with full-time employment getting closer to pre-recession numbers, and household net worth continues its gradual rise. On balance, our full-year growth outlook remains unchanged from the prior forecast at 2.1 percent."
“We hold by our previous comments that income growth still needs to strengthen, particularly for younger households, in order to drive significant housing growth, but we are nonetheless seeing some positive improvements in the housing sector,” said Duncan. “Home sales have trended up and inventories are lean, supporting strong home price appreciation. That price growth, driven by laggard supply response, helps build equity for existing owners but is a headwind for first-time buyers. Given significant uncertainties from Greece and China, continued global monetary easing, and an expected slow pace of monetary tightening by the Fed, we anticipate mortgage rates to rise only gradually through next year, which should continue to help support mortgage demand.”

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full August 2015 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic & Strategic Research Group, please click here.

its all about the math....

the parallels between the functioning of the federal government and the public education system are becoming more and more apparent - both are dysfunctional and focused on bureaucracy growing....

Oh, I forgot...the Department of Education is a federal bureaucracy!  

Improving Education Could Pay Off In Economic Growth

August 18, 2015

Developing students who think critically about math could have national economic implications. 

Mathematics not only teaches students how to perform basic math functions, but also it also cultivates problem-solving, refines cognitive ability and develops reasoning skills. (which are important in the 'real world' that we live in....my comment)

A nation's future economic growth can be predicted by student performance at age 15 on an internationally standardized mathematics test, highlighting the need for quality mathematics instruction in U.S. schools. 

• Statistical analysis of student mathematic abilities are indicative of national economic growth.
• Performing 25 points higher than average on the international test correlated to an additional national output of more than $40 trillion in the next 20 years.
• The quality of education is imperative, not the number of years of schooling a student completes.

Inspiring a generation to become competent mathematicians will require a high caliber of teacher that cares more about the student′s quality of learning than yearly test scores.  Instead of focusing on student performance or early childhood education, policymakers would do well to shift attention to recruiting and retaining excellent teachers.  

Increasing requirements for teacher certification, offering enticing wages and competitive benefits, and allocating substantial time for professional development and lesson planning would all serve to provide students with a higher caliber of teachers necessary to improve the national mathematics competency. (not more administrators!!! my comment)

The incentive to improve U.S. mathematics education is clear. If poorly performing student scores could be raised to even 100 points below the international average, the additional output over the next 20 years would equal $72 trillion, roughly four times the annual U.S. GDP. The urgency to develop quality mathematics programs taught by high caliber teachers is necessary.

Source:  Robert Litan, "How Improving Education Could Pay Off In Economic Growth," Wall Street Journal. August 8, 2015.

10 year treasury yield....

With all of the economic indicators reflecting continuing volatile conditions it would appear that the 10 yield movement shall follow suit. 

economic volatility...

Ongoing economic volatility would appear to indicate an environment that continues to lack a solid foundation....cracks continue to show up and global head winds may (will)  create additional fissures within the system. 

Economic prognostication: Volatility is thy name...

quotes for consideration

The ill effects of an intrusive central government reverberate across our economic horizon resulting in less liberty for all...

Bastiat quotes for your consideration: 

When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.

Each of us has a natural right, from God, to defend his person, his liberty, and his property.

Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.

Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.

Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone.

Frederic Bastiat

Claude Frederic Bastiat was a French economist, legislator, and writer who championed private property, free markets, and limited government. Perhaps the main underlying theme of Bastiat's writings was that the free market was inherently a source of "economic harmony" among individuals, as long as government was restricted to the function of protecting the lives, liberties, and property of citizens from theft or aggression. To Bastiat, governmental coercion was only legitimate if it served "to guarantee security of person, liberty, and property rights, to cause justice to reign over all."

One of Bastiat's most important contributions to the field of economics was his admonition to the effect that good economic decisions can be made only by taking into account the "full picture." That is, economic truths should be arrived at by observing not only the immediate consequences – that is, benefits or liabilities – of an economic decision, but also by examining the long-term second and third consequences. Additionally, one must examine the decision's effect not only on a single group of people (say candlemakers) or a single industry (say candlemaking), but on all people and all industries in the society as a whole. As Bastiat famously put it, an economist must take into account both "What is Seen and What is Not Seen."

The New Mediocre

The New Mediocre - is this the future for our economy?

Michael Feroli, of JPMorgan economics has been way, way out in front of the story of a new structural slowdown for the U.S. Economy. 

On Surveillance today, he reiterated his call for a sub-2% run-rate for America.

And then he dropped a bombshell.

Feroli suggests that without technological progress, America's demographics and subdued productivity will drive "normal" GDP growth even lower. And the pace of job creation in the coming years will fall to around 75,000.

JPMorgan Economist: Get Ready for the Economy to Produce Way Fewer Jobs in the Future

http://www.bloomberg.com/news/articles/2015-06-09/jpmorgan-economist-get-ready-for-the-economy-to-produce-way-fewer-jobs-in-the-future