From MoneyWeek:
Could the US consumer slowdown rebalance the world economy?
By Stephen Roach, global economist at Morgan Stanley
Long the engine of global consumption, the American consumer should retrench in a post-property-bubble climate. While this could take a cyclical toll on US and global economic growth, it could also provide meaningful relief for a massive US current account deficit — the principal imbalance of an unbalanced world. And if consumers elsewhere in the world finally step up, there might be a powerful and lasting impetus to global rebalancing. Sweet dreams for now, but ultimately the only way out for a US-centric global economy. What would it take to turn those dreams into reality?
The American consumer has slowed. Over the three quarters ending 2Q06, annualized growth in real personal consumption has averaged 2.7%. This is hardly a collapse. It does, however, represent a meaningful deceleration from the 3.7% average growth trend of the past decade — the most prolonged and vigorous burst of consumption in the modern-day history of the US economy. For ten years, spending by increasingly asset-dependent US consumers has exceeded growth in real disposable personal income by 0.5 percentage point per year. I suspect the recent downshift of US consumption growth is only the beginning. As the wealth effect fades in a post-housing-bubble climate and as a meaningful downturn now unfolds in the residential construction sector, I look for the relationship between income and spending to reverse — with consumption growth falling below the underlying pace of income generation for at least a couple of years.
For the rational consumer, this is just another way of saying that the sources of saving will shift away from asset appreciation back to labor income. From time to time, growth could well accelerate back above the subdued pace of the past three quarters; that appears to be occurring right now, as real consumption appears to be tracking a 3.5% annualized gain in the current quarter on the back of the sharp recent decline in energy prices. But with the headwinds imparted by negative wealth effects likely to be long lasting and a cumulative contraction in homebuilding activity likely to unfold over a couple of years, it will take steady and sharp further declines in oil prices to keep the US consumption boom going. That is not a bet I am prepared to make.
interesting idea… the time may be coming where people will again have to (gaps) save money that they earn.
hmmm. sounds complicated… might need graphs to explain this one.
that was ‘gasp’…not ‘gaps’… need coffee.
Whole lot of training for this one, though. I know people who have never saved, but are experts at credit card shuffling. How to convert managing debt skills to managing money might be the questions.
We have been saying this on this site for the past 4-5 months, maybe longer. Labor income??? Can the general public survive with this thought.
It will be like retraining Pavlov’s dog. We have had almost 10 stright years of asset appreciation. The consumption/attitude of the Americans,these last 10 years, rivaled the attitude of the 1920’s. HMMNN???
We have been on a consumption binge party. Labor income?? The americam consumer??? Somebody is ringing the bell!!!!!!!!!!
WASHINGTON (MarketWatch) – Job growth decelerated to its slowest pace since the hurricanes struck the Gulf Coast last year, the Labor Department said Friday. Nonfarm payrolls expanded by 51,000 in September lower than the 123,000 expected by economists surveyed by MarketWatch. But the separate household survey showed more strength. The unemployment rate ticked down to 4.6% in September from 4.7% in the previous month. Economists forecast the unemployment rate to hold steady at 4.7%. In addition, there were 62,000 more jobs created in July and August that previously estimated. Average hourly earnings increased 4cents, or 0.2% to $16.84. Economists had been expecting a 0.3% gain. Earnings are up 4.0% in the past year. The average workweek held steady at 33.8 hours, in line with expectations.
i would kill for a 33.8 hour work week!
I have a 20 year old cousin, who is currently in the mortgage industry while he puts himself through college. HE HATES IT, everytime I see him he really wants to quit, but he is on pace to make 65k this year part time while he goes to school. the money is just to easy.
Anyway, he lives home and really has no bills besides gas for the car and cell phone. Anyway i asked him how much he was saving every month, and he told me nothing. I asked how much he had saved, and it was nothing. whatever was coming in, was basically going back out.
So i told him to throw 50% of his pay into a savings account, and in 6 weeks he has almost 5k in there! He is so happy because he said he really does not miss spending the money, and it is nice to have it in the bank. I think a lot of people are just way to lazy to start saving, but if someone challenges them, I think most people can and will do it.
I agree i fewl like an old fart sometimes for being a saver. i was not always but at 35 i am glad i started sveral years ago.
it is amazing how fas the money pile’s up when you start saving on a regular basis
we are a dying breed
sorry for the terrible spelling
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