Outlook for the US Consumer
Comment of the Day

June 22 2012

Commentary by Eoin Treacy

Outlook for the US Consumer

Thanks to a subscriber for this insightful report by Torsten Slok for Deutsche Bank. Here is a section:
The 55-64 year olds saw their net worth decline by almost $100k from 2007 to 2010 (p. 4)

Median net worth declined $50k from 2007 to 2010 for couples with children (p. 5)

College educated families saw their net worth decline by a third from 2007 to 2010 (p. 6)

Families on the West Coast experienced the biggest wealth decline during the crisis (p. 8)

The most important reason for saving money is no longer retirement but liquidity (p.9)

The median value of stock holdings for all households has fallen from $43k in 2001 to $30k in 2010 (p. 10)

Housing makes up 50% of all household assets, except for the 90th percentile of income (p. 14)

Leverage, i.e. household debt divided by household assets, is highest for the middle-income groups (p. 17)

Leverage for <35 year olds is more than 50% (p. 18)

Mortgage debt went up for high income families from 2007 to 2010, but fell for middle-income families (p. 21)

Average credit card balance for high-income families is $8k (p. 22)

Household debt is falling and assets are slowly edging up, i.e. balance sheet repair continues (p. 32 and 48)

The number of people who are going into foreclosure is falling (p. 46)

Households' financial obligations ratio now at the lowest level since 1984 (p. 54)

Overall, we have seen a continued improvement in consumer demand for loans and banks' willingness to lend (p. 71)

Bottom Line: Household sector balance sheet repair continues and household deleveraging could come to an end in late 2012 as the housing market continues to improve and home prices start rising modestly.

Eoin Treacy's view While there is a strong temptation to dwell on the problems when an economy has been struggling to create jobs for a number of years, the standard of living has been deteriorating for such a large proportion of the population and home foreclosures continue to make headlines, it is also important to acknowledge that a substantial amount of deleveraging has already occurred.

This article by David Rocks and Nicholas Leiber for Bloomberg highlights how US competitiveness has improved as wages declined and costs were brought under control while wages rise in China.

Following a six-year decline the US Dollar Index has been forming a base above 70 since 2008. It is currently rallying towards the upper boundary and a sustained move below 80 will be required to question current scope for additional upside.

The Nasdaq-100 Index remains a global timing and relative strength leader. It found at least short-term support above 2400 at the beginning of the month and will need to continue to hold above that level if the medium-term uptrend is to remain consistent.

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