Wednesday, February 25, 2015

Headwinds for US Consumers & Home Buyers (excerpt)

It’s possible that US consumers aren’t spending their petroleum windfalls as much as was widely expected because they are not convinced that the prices of the fuels they use won’t bounce right back up, as they often have in the past. Many of them have also seen their health insurance copays rise sharply. The same can be said about their deductibles, which always hit consumers hardest at the beginning of the year until they’ve spent the amounts required before insurance starts picking up the tab.

US consumers have always been very important to the global economic outlook. They may be even more important now given the secular stagnation that is troubling the economies of the Eurozone and Japan. American incomes have certainly been boosted by solid employment gains. Despite a small decline during February, their confidence remained strong. Indeed, 20.5% agreed that jobs are plentiful, barely changed from January's 20.7%, which was the best reading since February 2008. The problem is that when consumers ratchet up their spending, they also spend more on imports. But that’s good for the global economy.

Perhaps the biggest disappointment of the current economic expansion is that housing remains a significant laggard. Indeed, despite the renewed decline in mortgage rates, existing home sales have been weak in recent months. Home buying has been a huge booster of consumer spending in past expansions, especially the previous one. When one buys a home, lots of spending that is discretionary suddenly becomes obligatory to fix it, furbish it, and maintain it.

There are many good demographic reasons why there should be plenty of pent-up demand for houses. On the other hand, there are many that would explain why home sales aren’t booming. The number of singles in the adult population aged 16+ is equal to the number who are married for the first time ever. Singles are less likely to buy a house than married couples. Also, lots of Millennials prefer renting apartments in cities rather than living in the suburbs.

Today's Morning Briefing: Zero Sum Game? (1) The decoupling debate. (2) More integrated. (3) Redistributing growth. (4) Oil: More winners than losers? (5) Negative vibes from oil shock. (6) US consumers using oil windfalls to pay health insurance deductibles? (7) Housing recovery still lagging. (8) Net Earnings Revision Indexes up in EMU and Japan, down in US. (9) Yellen sprinkles her fairy dust. (10) Yellen still worrying much more about labor market than financial bubbles. (11) Earnings: One more time. (More for subscribers.)

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