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One puzzle of the recent gain in consumer spending — including the solid start to holiday shopping — was how were consumers financing the purchases.
A popular explanation was that shoppers were drawing down their savings. The drop in the saving rate, to 3.8% in the third quarter from 5.6% a year earlier, supports the idea that consumers are using up their seed corn to put a iPad under the tree.
Joseph LaVorgna, chief U.S. economist at Deutsche Bank, has another idea. He argues the saving rate as reported by the Bureau of Economic Analysis understates income and how much households are really socking away.
If correct, the idea is important for the outlook. Consumers have lost two sources of financing that kept spending afloat pre-recession: home equity and easy credit. Future gains in consumer spending — a linchpin for overall economic growth — will depend on better income growth coming at a time when households are still rebuilding their finances.
More income would also explain why the sentiment surveys have shown consumers are disgusted about economic policy coming out of Washington but continue to spend.
LaVorgna points to two trends to suggest the undercounting.
First, monthly payroll data continue to be revised higher — a normal occurrence at this point of the business cycle. Over the past five months, he says, nonfarm payrolls have been revised up an average of 49,000 per month.
The second argument is that reported employee tax receipts are rising at a faster pace than the BEA’s tally of wages and salaries.
LaVorgna and his Deutsche Bank colleagues estimate that as of the third quarter, wages and salaries are understated by nearly $125 billion.
“Over an entire year, this is worth nearly two percentage points on the saving rate,” LaVorgna concludes, implying a rate closer to 6% than below 4%.
If that’s the case, then consumers have more seed corn than many economy-watchers think. Households are being diligent about replenishing the wealth lost during the financial collapse and housing bust.
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First, who would trust what ANY economist said or predicted?
Secondly, much less for an economist connected to wall street.
Lies, damned lies and statistics.
Could it be that we have underestimated the effect of the underground economy on consumer spending? As unemployment benefits have been extended many individuals have gone to the underground to supplement their incomes while collecting benefits and supposedly seeking employment.
LPS reported that the average number of days that homes in foreclosure had gone without making a house payment also set a new record of 631 days?they also report foreclosure rates in non-judicial states as being 4 to 5 times higher than in judicial states, where the banks have to “show the note” in court?at least for the judicial states, this probably bodes well for christmas sales too, as almost 7% of homeowners arent making house payments, so they'll have that much more to spend on toys from china?
La Vorgna has always been a CNBC wall street shill who has very little understanding of the real world or anything else.
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Digg
One puzzle of the recent gain in consumer spending — including the solid start to holiday shopping — was how were consumers financing the purchases.
A popular explanation was that shoppers were drawing down their savings. The drop in the saving rate, to 3.8% in the third quarter from 5.6% a year earlier, supports the idea that consumers are using up their seed corn to put a iPad under the tree.
Joseph LaVorgna, chief U.S. economist at Deutsche Bank, has another idea. He argues the saving rate as reported by the Bureau of Economic Analysis understates income and how much households are really socking away.
If correct, the idea is important for the outlook. Consumers have lost two sources of financing that kept spending afloat pre-recession: home equity and easy credit. Future gains in consumer spending — a linchpin for overall economic growth — will depend on better income growth coming at a time when households are still rebuilding their finances.
More income would also explain why the sentiment surveys have shown consumers are disgusted about economic policy coming out of Washington but continue to spend.
LaVorgna points to two trends to suggest the undercounting.
First, monthly payroll data continue to be revised higher — a normal occurrence at this point of the business cycle. Over the past five months, he says, nonfarm payrolls have been revised up an average of 49,000 per month.
The second argument is that reported employee tax receipts are rising at a faster pace than the BEA’s tally of wages and salaries.
LaVorgna and his Deutsche Bank colleagues estimate that as of the third quarter, wages and salaries are understated by nearly $125 billion.
“Over an entire year, this is worth nearly two percentage points on the saving rate,” LaVorgna concludes, implying a rate closer to 6% than below 4%.
If that’s the case, then consumers have more seed corn than many economy-watchers think. Households are being diligent about replenishing the wealth lost during the financial collapse and housing bust.
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