Kick The Can Down The Economic Road

Earning (sigh - as this heavily massaged and adjusted number is not what it seems) and spending more and save less philosophy has transitioned from economic choice to necessity for Americans. America’s reliance on personal consumption, more commonly known as "spending", kicks the can down the road.

The belief that economic problems are defined by weakness real estate is misguided. Real estate continues to be only a minor contributor to gross domestic product (GDP). It’s contribution to GDP was only 6% at height of the real estate bubble.

Residential Fixed Investment (RFI) As A %GDP and Residential Fixed Investment (RFI) As A %GDP Average from 1947:


Real estate’s importance since 2000, a point often missed by the headlines, resided in its ability to support and enhance leveraged consumption. Many Americans considered their homes as piggy banks for extra consumption prior to the collapse in 2006.

The reliance on consumption to support GDP, however, did not fade with the decline of the real estate market. In fact, yesterday’s personal consumption expenditures as a percentage of GDP nearly eclipsed the all-time highs achieved in 2009 (see chart below). In other words, spend more and save less, or the driving forced behind ongoing consumption bubble and economic imbalances within U.S., is live and well.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947


How’s the consumption bubble maintained as real estate fades? The public sector through a combination of infinite quantitative easing (currency devaluation) and stimulus has replaced real estate as the boot that kicks the can down the economic road. The public sector spending which represented 17% of GDP in 2000 has surpassed 20% in 2010. Federal spending at 8.3% of GDP has jumped 43% during this period.

Government Consumption Expenditures and Gross Investment (GCEI) As A %GDP Average from 1947:


Federal Consumption Expenditures and Gross Investment (FED) As A %GDP Average from 1947:


Investment and savings are the foundation of any sustainable economic recovery or economy. Investment in the US continues to flounder at levels not seen since the Great Depression. Unadjusted savings, heavily influenced by statistical assumptions and adjustments, thus, making historical comparisons meaningless, have turned but remain challenged despite the economic collapse.

Gross Domestic Private Investment (GDPI) As A %GDP and Gross Domestic Private Investment (GDPI) As A %GDP Average from 1947


America is known for spending more and save less. The trends clearly reveal that is changed despite the rhetoric. Kick the can down the road until it's someone else’s problem.

Savings (SAV) As A %GDP Average from 1947:


Headline: Americans earn and spend more, save less

As incomes slowly creep back up, Americans are spending more freely and saving less. Personal income rose 0.4% in December, following a 0.4% increase in November, according to data released Monday by the Commerce Department.

Spending by individuals ticked up 0.7%, compared to a revised 0.3% spike the prior month.

Both measures beat expectations. Income was expected to increase by 0.5% in the month, according to a consensus estimate of economists from Briefing.com. The economists expected spending by individuals to rise 0.6% in December.

Source: finance.yahoo.com