December 17, 2005


Can America keep it up? (The Economist, Dec 14th 2005)

FOR several years now, economists have been watching American consumers with the same mixture of astonishment and anticipation that wide-eyed fans bring to endurance sports: amazing that they’ve made it so far, but how much longer can they go on like this? Strong consumer spending has underpinned America’s robust economic expansion, even as most other industrialised countries have struggled to get their economies back on track. But consumers have been running down savings to sustain this level of spending; the personal savings rate has actually been negative since June. Booming house prices and low interest rates have enabled consumers to take on more debt without suffering much, but with interest rates now climbing, Americans have begun to feel the pinch. Data from the Federal Reserve show that the percentage of household disposable income devoted to servicing debt was a record 16.6% in the third quarter.

Yet the consumers soldier on. Figures released by the Census Bureau on Tuesday December 13th show that retail sales in November, when the Christmas shopping season starts, were up by 0.3% from October, and 6.3% higher than a year earlier. And on Wednesday, the Department of Commerce announced that imports of oil, cars and consumer goods caused the already gaping trade deficit to balloon even further in October, to a record $68.9 billion. This surprised economists, who had been expecting the deficit to fall slightly as oil prices subsided from their September highs.

It seems unlikely that consumers will have the stamina to keep this up much longer.

I just know this is the year the USSR surpasses our GDP...

Posted by Orrin Judd at December 17, 2005 3:31 PM

I just know this is the year the USSR surpasses our GDP...

Right after the East Germans.

Moynihan was prescient: We should have dismantled the CIA once the Wall was torn down.

'Course, if we do that where will the NY Times get its stories?

Yeah, yeah, I know, Foggy Bottom.

Still, a march of a thousand dismantled bureaucracies begins. . .


Posted by: SteveMG at December 17, 2005 3:48 PM

"It seems unlikely that consumers will have the stamina to keep this up much longer."

Funny, I thought it involved money, and not stamina.

Posted by: Jim in Chicago at December 17, 2005 3:59 PM

Taken from "The Economist", which thinks China has the greatest economy in the world (and said so, in at least two cover stories that I saw in airports in the past few months).

Posted by: jim hamlen at December 17, 2005 4:21 PM

Data from the Federal Reserve show that the percentage of household disposable income devoted to servicing debt was a record 16.6% in the third quarter.

Am I right in assuming this includes servicing mortgage debt but that rental payments would not be included?

Posted by: Peter B at December 17, 2005 4:44 PM

Exactly what are they basing savings on? Do they include my 401k's, etc, whose money is deducted from my pay before it ever gets to me? Are they living in the modern world or 1950?

Posted by: Mikey at December 17, 2005 5:04 PM

"Can America keep it up?"

A rhetorical question, I presume.

Posted by: ratbert at December 17, 2005 7:24 PM

There is more to the article:

Economists have long been warning of these risks. But someone plainly forgot to tell the economy that it was supposed to be in trouble. According to figures released earlier this month, GDP grew at an annualised rate of 4.3% in the third quarter, revised upward from a preliminary estimate of 3.8% issued in November. That is despite the ravages wrought by hurricanes in August and September, which not only destroyed a major port city but closed down a big chunk of the energy industry.

Better still, last week the Department of Labour reported that over the same period, productivity had grown by 4.7%. And payrolls, which barely grew at all in September and October, finally posted a respectable 215,000 new jobs in November. Little surprise, then, that George Bush is once again talking up the economic data, and seeking to claim some of the credit for his policies, particularly tax cuts.

Sadly for Mr Bush, it appears someone also forgot to tell the voters that the economy is doing well. Polls show approval ratings for the economy on a par with the rest of his dismal numbers.

Employment has generally lagged behind the economy. Payroll employment troughed in May 2003, 18 months after the recession ended. Since then, the economy has added 4.5m jobsand unemployment currently hovers around 5%. But wage growth has been sluggish, implying a soft jobs market.

Posted by: Ali Choudhury at December 17, 2005 7:34 PM

New Orleans a major port city? I don't recall 100 cargo ships sitting off the coast of Louisana last year, like Long Beach/Los Angeles, waiting to unload. I think the Economist believes we're still using river barges and trains to delivery goods - we have, what you call those things govn'r? Right...Lories across the pond too!

Posted by: KRS at December 17, 2005 11:35 PM

According to the link below, New Orleans was in the Top 10 ports for foreign and domestic trade, by tonnage and cargo value in 2003.

The No 1 port in the US (and 5th biggest in the world) is the Port of South Louisina which is currently shut down thanks to Katrina. According to Wiki it handles 60% of grain exports from the Midwest and is the major receiving point for Saudi Arabian oil supertankers.

Posted by: Ali Choudhury at December 18, 2005 7:33 AM

I blame C-SPAN. No one has ever doubted Congress's ability to spend. With their example displayed on every cable system, how could the American consumer not be inspired?

Ali Choudhury> someone also forgot to tell the voters

There are no voters until election day.

Posted by: Bob Hawkins at December 18, 2005 9:30 AM
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