Economy

Careful Shoppers Put the Y Back in Xmas

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Even though this movie came out in February 2009…

The establishment media want you to get happy about shopping this Christmas, but how can you do that when the value of your damn house keeps falling?

At his Pentonomics blog, Euro Pacific Capital senior economist Michael Pento puts a lump of coal in the stockings of those confident consumers you keep hearing about:

But data released today from The S&P/ Case-Shiller Home Price Indices should dampen shoppers' enthusiasm. The U.S. National Home Price Index fell 2% in the third quarter of 2010. On a national basis, home prices are 1.5% lower than their year ago levels and 15 out of the 20 cities measured were down over the last 12 months. On a monthly basis, 18 cities posted declines from August, compared to 15 month-on-month drops in August and just eight in the July report. Home prices are headed lower because of tight credit, high unemployment rates and a huge backlog of foreclosure properties.

On a separate note, the recent move higher in the dollar index reveals little about the true strength of our currency. The DXY is up .4% today mostly on Euro weakness. However, the price of gold surging $20 an ounce clearly illustrates the true direction of the dollar. Saying the dollar is gaining purchasing power today is akin to believing someone falling off a cliff at 90mph is actually flying, just because his buddy is dropping at 95mph and will therefore will hit the ground first.

Free money and a massive increase in government debt have managed to temporarily levitate the serotonin levels in consumers' brains.

Are all these happy shoppers just impulse buyers in the mall of fools? This week's precipitous decline in the Case-Shiller housing index certainly feels like the other shoe of the double dip rearing its 500-pound head like the elephant in the snake in the grass. New unemployment applications keep going up. According to Federal Reserve flow of funds data [pdf], household net worth, which we look in on from time to time, has been falling for two quarters and – at $53.5 trillion – is still more than $5 trillion below where it was in 2007 [pdf].

…when most people felt like this…

Remember also that people are not just seeing declines in the value of the houses they own; they own less equity in their houses. The second quarter flow of funds report has the equity portion of real estate at only 43 percent—close to the lowest it has been in U.S. history. Finally, all these stories about a record "Cyber Monday" don't mean much. (And as much as I love to kick it old school, can we retire the prefix "Cyber" already? It sounds like something the Grecians would have invented.) E-commerce, according to the Census Bureau [pdf], still accounts for a mere 4 percent of total retail sales.

But here's some interesting news that could make Pento turn that frown upside down: People are earning again. According to the Bureau of Economic Analysis, personal income in October was $12.67 trillion. That's the highest it's been in BEA records going back at least to 2005. The personal income figure has been rising steadily throughout this year, after remaining more or less flat at $12-$12.1 trillion through most of 2008 and 2009.

They're also saving slightly more – sort of. In the past we have caught Tim Geithner and his droogs – on more than one occasion – lying about a fictional increase in personal savings. But the savings rate has been trending up in recent months and averaged 4.84 percent for the ten months beginning in January. That's still less than half what it was when this nation used to win wars and make stuff. But it's higher than it was through most of the past decade.

Locust-eating scold that I am, I still want to believe this season's shopping will be driven by fools maxing out their credit cards and planning to go on relief once they can't pay back their debt. But the credit card industry continues to slim down, with credit balances declining year-to-year and eight million people giving up credit cards entirely.

The foreclosure jam Pento points out may actually be helping the savings rate. One of the many reasons default and foreclosure is the most humane remedy for mortgage deadbeats is that it frees up their income rather than leaving it committed to payments they can't afford. You may know a few good people whose disposable income has increased through the magic of no longer having to pay an exorbitant mortgage. I know I do.

Spending is only a problem when you're not spending your own money. That doesn't seem to be the case this season.  If people want to splurge this Festivus, mazel tov to them.

…it still grossed $108 million worldwide (on a production budget listed as "not available" by BoxOfficeMojo). Go, capitalism!

NEXT: The Folly of Attacking Iran

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  1. “like the elephant in the snake”

    I’m pretty sure that’s just a hat.

    1. It’s not just some snake; it’s a boa constrictor.

      1. It’s a snake in a python.

        1. It’s a hedgehog in a hovercraft full of eels.

  2. Home prices are headed lower because of tight credit

    Really?

    1. The irony of course is that loose credit was supposed to make homes more affordable.

  3. Off topic, but why is there, on the Reason site of all places, an advertisment inviting me to “click here” to object to Governor Christie’s proposal to privatize New Jersey Network, the state-funded TV channel? Wouldn’t libertarians be supporting such a move?

    1. Sure, but why stop reason from letting whatever interest group that is waste their money on an ad here?

    2. Click that shit and cost those people some money.

    3. Not any worse than all the links for “Become a SWAT Officer” and “Get a Job In Homeland Security” that show up on this site and the Agitator.

      1. I’d like to swat some officers.

    4. I miss carpet humping guy.

  4. Isla Fisher = very hot.

    1. ^^THIS^^

    2. She’s piiiiiiiiiiiiiiiiiiiddy.

    3. Come to think of it, I wonder if she has ever kissed a lobster, and whether this event was captured on film…

    4. Isla Fisher = banging Borat

      Fuck you, God. If you exist, that is.

      1. Doesn’t that combination prove an omnipotent being with a cracking sense of humor exists?

        1. Pretty much. Or if that didn’t, Zoe Daschenell marrying this dork did.

          http://blog.unitedwetab.com/mt…..;tag=Death Cab for Cutie&limit=20

          Seriously, WTF?

      2. Fuking her is, how you say, VERY NIIIIIIICE!

    5. mmmmm….Isla Fisher….*drools*

      Also, he may be ugly in Borat, but Sasha Baron Cohen is a generally pretty funny guy, and not terribly unattractive in normal guise.

  5. (And as much as I love to kick it old school, can we retire the prefix “Cyber” already? It sounds like something the Grecians would have invented.)

    Ain’t.
    Gonna.
    Happen.

    Cyber as a prefix is here to stay.

  6. why is there, on the Reason site of all places, an advertisment inviting me to “click here” to object to Governor Christie’s proposal to privatize New Jersey Network, the state-funded TV channel? Wouldn’t libertarians be supporting such a move?

    Libertarianism allows for the free dissemination of ideas; what you do with them is up to you.

    Besides, ten bucks is ten bucks.

  7. but teh stock market is up!! *derp*

  8. The establishment media want you to get happy about shopping this Christmas, but how can you do that when the value of your damn house keeps falling?

    What kind of fiscal idiot bases their purchasing levels on the current market price of the house they’re living in?

    1. I believe they’re called “Americans”.

    2. If some of the income used to pay for such spending previously came from taking the equity out of their house via refinances and HELOC loans, it makes a lot of sense. Lots of people bought a house in 1996 for $100k and then refinanced it for $300k in 2006 so they could buy all the shoes in the bottom picture. Of course, said house is now worth $100k again.

  9. C-S is a 3 month roll. The month over month drops are due to the $8k subsidy rolling off.

  10. Mostly off-topic: wasn’t the idea of “Cyber Monday” that everyone went back to work and their high bandwidth connection to do their shopping?

    Now that folks are watching TV on YouTube, doesn’t that imply that they have plenty of bandwidth at home to serve Amazon pages up as fast as they can whip their credit cards out?

    I wonder how many years of a steady line of retail sales from Thanksgiving evening to the next Thursday will have to go by before the Cyber Monday concept fades.

    The name is fine. It’s Cyber-retro.

  11. But the savings rate has been trending up in recent months and averaged 4.84 percent for the ten months beginning in January.

    What an appallingly low number. Even lower if you net out the borrowing done at the state and federal levels, which seems to me should be netted out.

    Now, I’ve got good cash flow, sure, and I’m not paying tuition for any rugrats and working on an early retirement type deal, but our household savings rate, all in, is well north of 30%.

    1. You don’t live in the real world. RC. You seem to live somewhere in West Texas where the housing costs are virtually nil. And you have a good job and no one in your family is sick. And you don’t have kids. To expect the entire country to maintain a 30% savings rate is absurd. And further even if they could it is still absurd.

      Be my guest and save all that money that you could have enjoyed when you were young and healthy for when you are old and can’t enjoy it and some future Tony comes and taxes it away in the name of fairness.

      Saving a large portion of current income for retirement is the biggest suckers game ever. If you think our socialistic, irresponsible government is going to keep their filthy paws off that money when you actually go to use it, I have a bridge to sell you.

      We are both going to end up in the same place RC; government enforced poverty in the name of fairness and fiscal responsibility. I will just have enjoyed my money instead of saving it so the government can use it later.

      1. I know, John, I’m a demographic minority, and very few people are in situations where they could save at this rate. Still, I’m not that unusual, demographically.

        Everybody could spend what they make, and more, including me. Lots of people could spend less than they make, significantly less, and not be hungry or cold or deprived in any meaningful way. But hardly anybody does, even people making a lot of money.

        Its pathetic.

        As for the MNGs and Tonys taxing away my savings, well, don’t think their attempt to do so isn’t factored into my plans . . . . As long as they don’t confiscate IRAs and 401ks within the next, say, 7 years, I doubt I’ll lose much to the parasite slaver class.

        1. I agree with saving, although I think there is something to be said for immediate gain. I have just lost all faith in our current government. I have a military and a civilian retirement. And I will save some. I have spent my 20s and 30s paying off debt and not making a lot of money. Now that I do make good money and have very little debt, I will save some. But I won’t save a lot. I don’t trust the government to leave it alone.

          And the whole concept of a 401K infuriates me. Fuck the government. Who are they to tell me when and where I can get money I made and saved? We should eliminate all capital gains and interest taxes. There should be no such thing as a 401K. People should be able to save for whatever purpose they want and use the money they make saving, including extra pay provided by their employers, for whatever and whenever they want.

        2. Given the inevitable fiscal crisis in this country, and the insatiable demand for MOAR OF YOUR MONEE that will create, I think anyone would be well-advised to start thinking about how they can minimize how that will hit them.

          There’s a reason I’m investigating Panama in a few months, and why I am shifting assets into an untraceable form. What I have that is truly exposed to confiscation is in retirement plans. I have some ideas there, but none that don’t involve some species of fraud.

      2. 30% would be an absurd expection. 10-15% though? Yeah, that isnt unreasonable.

        1. It wouldn’t be unreasonable if we had reasonable tax rates and Alan Greenspan hadn’t jacked housing prices up so high people now have to spend upwards of 40% of their disposable income on housing.

          Gee maybe driving housing prices through the roof makes it harder for people to save? You think?

          1. It isnt unreasonable with current tax rates. Not everyone can do it and if you bought an overpriced house, that does make it tougher.

            You know what you do when housing prices are too high?

            A. Move
            B. Rent

            1. Not as easy to move as it seems. People have jobs and lives. And forcing people to move is another sin of the housing bubble. And renting is a great idea until you consider that the home mortgage interest deduction is the only tax break available to most people in this country. Sure, rent. Avoid the high mortgage payments but get ass raped by the IRS every year.

              Alan Greenspan and the Fed and the federal government via crooks like Barny Frank and Chris Dodd totally fucked people in this country. And they ought to be shot for it. No amount of libertarian piety makes the situation any less infuriating.

            2. High housing costs wash through to high rents, too. So I’m not sure that helps.

        2. I save 40% of my gross income, and 51% of my take home. I make a decent wage, and I’m frugal, but I also enjoy life. I don’t see any reason why the average person can’t save at least 15%, kids or no kids.

          On John’s point, if Tony and the looters come after my savings, that will just give me one more reason to go out in a blaze of glory. Odin will surely choose me for his hall if I die covered in the blood of a hundred statists. Still, I’d rather plan for the future, try to invest, and worry about keeping my investments later, than not plan at all out of despair from the greed and stupidity of the political class.

          1. So, invest in bullets? Out of curiosity, just did last few months savings rate. Even with many impulsive purchases still averaging 33%. When I look at wages for my position and think I could be making more I remember that I live in Pittsburgh and the cost of living is nil.

            1. I’m also investing in sheep and women. None of that derivatives/futures based crap either, I mean real delivery of warm, lamb spawning sheeps.

  12. Tradionally, the auto industry leads the country into and out of a recession and employment gains come later. The auto industry has been improving for at least six months.

    The housing and European debt crisis thingees somewhat complicate the recovery picture. As they say in the mutual fund commercials, past results are no guarantee of future performance.

    IMHO, if the government wants to give the economy a boost they should SIMPLIFY THE TAX CODE and wait.

    1. I think that using the auto industry as a bell-weather might not be useful this iteration given the events with GM and Chrysler.

  13. Simplify the tax code?

    Rich people might benefit! (Actually, they won’t but try to convince people…).

    1. Won’t somebody please think of the accountants!?

      1. And the lawyers. And the regulators.

        I’ve seen estimates as high as $200 billion per year in savings with a flat tax for individuals and corporations.

      2. I do everyday, and I’ve come to the conclusion if they didn’t get their accounting degree before 1985 they are useless, mindless, number crunching, automatons. I’m not fond of accountants, the majority today tend to be statist worthless paper pushers that couldn’t form a decent thought or concept on their own if their life depended on it.

  14. Case Shiller dropping again is just the market trying to clear. Not sure I’d call it a harbinger of a double dip since it could indicate the start or continuation of suckitude.

    1. Also, I’m not willing to concede that the original dip ever ended.

      1. We have a winner Tim. The first dip never really ended. And it won’t end until the market clears off all the bad debt and over priced assets. The case shiller index dropping is a good thing. The only reason he hasn’t dropped further and sooner is because of our government’s idiotic efforts to avoid the inevitable.

      2. Ya, that’s my poorly written attempt at humor with the continued/start of the suck. I guess you could call 08 the start, but without the market clearing I kind of looked at the point at which we hit the long protracted craptastic prices and market weakness as the start since it usually comes after a precipitous drop.

      3. I am.

        Go to Redfin.com, and look at their graphs for any random city. Sold prices ($/sq ft) in the vast majority fell untill spring or summer 09 and have been climbing ever since, with maybe a slight retreat in recent months.

        1. $8k subsidy.

          The entire May 2009 to recent rise was due to it.

          We would have been flat to down without it. The drop now is due to it going away (3 month roll in Case-Shiller means its just showing up). I think we may have bottomed out in 2009, but the government fucking around makes it really hard to tell for sure.

          1. May 2009 to June 2010 Case-Shiller increase was 4.88%.

            Median home price in US – ~170k.

            170k * .0488 = $8296.

            The increase was due to the subsidy, surprise, surprise. Maybe, just maybe, we have started back up, but C-S is still falling to shed that $8k.

  15. Cas-Schiller wasn’t bad, and pending home sales were up 23. Not saying it’s abooming economy, but Pento is being a grinch. We need a major credit event to cause a double dip, otherwise it’s a slow grind higher.

  16. sooooo…

    Tim,

    Shouldn’t you or Sudderman be writing about how the US bailed out GE and a bunch of foreign banks and governments?

  17. This thread has reminded me of a conversation I had with my uncle a few years ago; I made a disparaging comment about the negative savings rate being reported at the time.

    He told me I was crazy, because all those people were “investing” in houses, and they were all gonna live high off the hog while skinflints like me ate beans and whined about missing out on the Great Housing Boom.

    I should call him up and remind him about that.

    1. You should. I endlessly remind the finance types I know who all told me that housing could never be a bad investment of how fucking stupid they were. They really don’t like that and mumble a lot about it being a “long term investment”.

      1. …and aren’t we all dead in the long run anyway…

        1. Yup. Even healthy people with a big 401K die eventually.

          1. What about marginally healthy people with small 401ks?

      2. Housing and healthcare don’t behave like normal markets.

        And stuff.

  18. Does Isla Fischer have big feet ? In that pic, some of those shoes look huge. Maybe she looks so pained because she’s in her boyfriends room, and those are not her shoes.

    1. Well, she is married to Sasha Cohen.

      1. Just wait’ll she finds that swimsuit.

        1. She’ll wish she’d married a garden variety transvestite ? Just askin…

  19. Remember also that people are not just seeing declines in the value of the houses they own; they own less equity in their houses.

    And yet King County assesses housing prices higher and higher, every. single. year.

    1. It’s almost like they get some benefit from doing that.

  20. ugust, compared to 15 month-on-month drops in August and just eight in the July report.

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