That home improvement graph makes me think about all the house flipping shows made in 2003/2004/2005. I really think a tv network could get great ratings if they started a "deals gone bad" type show.

p.s. Bernanke is a loser.

Sadly, I'm starting to agree.

We've had a whole new debt orgy on his watch that was entirely preventable.

There is more evidence today that the housing slump is spilling over into consumer spending.

CR,

If this was the case, wouldn't we expect to see a sharp slowdown in nominal PCE as well? There's no doubt that real PCE was slower in Q2, but the question is why?

Here's nominal YoY PCE since 2000. There's been a slight fall off since 2004, but nothing too drastic. If you look at the last 12 YoY data points, growth in nominal PCE has been pretty flat. Real PCE isn't weak because consumers are spending less, but because inflation has eaten into their purchasing power.

As far as I can tell, we saw this same pattern in 2006 in which the bookend quarters (Q1 and Q4) had strong real PCE (4.8% and 4.2% respectively), while the middle quarters had weaker real PCE (2.6% and 2.8%). Real PCE for Q2 of this year will be weaker, but it's not because consumers are spending fewer dollars. It's because of what they're spending their dollars on.

It makes me think a lot of the economic growth we've had since 1981 and the unusual lack of recessions is simply due to this phenomenon of 25 years of falling rates.

It makes me think as rates bottom out we'll be in the opposite situation for 25 years or so.

I agree.

However - that doesn't mean all firms will suffer the same. Some will do better (or at least less bad) than others.

My guess is those that keep a better lid on their fixed cost investment - even if it means not being able to clamp down as tightly on their variable cost - will do better through this period.

It will be all about 'operational flexibility' and not about 'maximizing leveraged advantage'. The latter was what worked over the last couple decades.

JMHO.

I expect the spillover debate to pick up after GDP is announced.

CR - have you made a call on GDP?

CR,

Obviously from a growth perspective, real PCE is what matters. But if you're trying to pinpoint the source of the weak real PCE for Q2, I'm not sure how weaker housing/less MEW can be the culprit when consumers are spending the same amount of dollars.

Real PCE for Q2 of this year will be weaker, but it's not because consumers are spending fewer dollars. It's because of what they're spending their dollars on.

I think another way of saying that is that spending is switching from discretionary items to essentials, which may not fit well with the current configuration of economy which seems aimed more at these discretionary purchases.

This in combination with the recent increase in the negative savings rate and increased uptake in high interest debt suggests stress.

Also, I think it's interesting how we're seeing this situation today with a weakening dollar, rising oil prices, and falling interest rates which seems to occur alot when we get bad news.

To me this seems consistent with inflation associated with a credit binge.

Wild frenzy of petrodollar recycling and Chinese treasury hoarding today:

graph
Bloomberg.com:
Government Bonds

Steve, I clicked on the link, but the chart didn't tell me much, other than that the rate of increase in nominal PCE does seem to be slowing. Your post seems to ignore the obvious problems with retail as reported by Home Depot, Sears, etc.

Anyway, it's good to hear from you. I thought you'd given up. I don't understand how you can think that we are not slowing, when all I have to do is look around my neighborhood, or almost any neighborhood in Michigan, and see that we are at a once in a lifetime real estate debacle. But that's why I come here -- to read different points of view and I always appreciate your references to relevant data.

Effectively, the economy will slowly suffocate under the weight of stretched consumer balance sheets. I agree that the US should work through it's problems more quickly than Japan did, but that also worries me, because it increases the probability of a disorderly adjustment instead of a long, muddling adjustment with a series of "contained" crises. Of course, 5 years of sub-par economic growth will open up a pretty good output gap, which should be deflationary and leverage unfriendly.

I agree that the US should work through it's problems more quickly than Japan did, but that also worries me, because it increases the probability of a disorderly adjustment instead of a long, muddling adjustment with a series of "contained" crises.

I think it's possible that Japan has merely deferred a crisis with it's policy, despite a gloomy "lost decade".

Looking at Japan's massive public debt and the hurricane of hot money around the globe coming (in part) from the Bank of Japan makes me think the story of "the Original Bubble Economy" isn't over quite yet.

called_bluff- lows on bsc, the market?

The conjure bag says BSC is going to test 130. I asked it about the market and all I got was silence.

Disclaimer: Although the conjure bag has moments of lucidity, more often than not it is in a drunken stupor caused by mp enthusiastically feeding it too many drops of German beer, dry vodka martinis and bar pretzels. In others words, do your own homework.