Is the US economy not getting worse? - The Daily Reckoning

Is the US economy not getting worse?

Jan 10, 2012

Johannesburg, South Africa

Recession fears are receding. At least, that's what it says in the papers. The economy has been adding new jobs at an average rate of about 130,000 per month. That's only about what it takes to stay even with increases in the population.

Still, it's not bad. Because it seems to mean that the economy is not getting worse. ---------------------------------------- Did you miss the Webinar? ----------------------------------------

Equitymaster's Webinar on the Future Prospects for the Indian Economy with Mr Ajit Dayal was broadcasted on 30th of December, 2011.

The webinar answered questions that could be troubling any Indian Investor today. Where is the Indian Economy headed in 2012? Is Gold still a good investment? Could the Stock Market touch the 21000 figure in 2012?

If you missed watching the webinar, here is your chance to access the same.

Click Here to watch: Indian Economy - From Darling to Damned (Rebroadcast)

And let's understand what lies ahead for India and how could this impact your investments.

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Or...does it? While jobs are looking better, income is looking worse. David Rosenberg is on the case: A WAGE-LESS JOBS RECOVERY

It was interesting to see that from July to November, the U.S. economy managed to generate 653k net new jobs, and yet real personal disposable income fell in four of those five months and at a 1% annual rate through that period. What prevented an overall contraction in consumer spending was a drop in the savings rate from 5.0% to 3.5% and a benevolent 60 cent drop in gasoline prices. Absent these two effects, real consumer spending would have actually contracted at a 3% annual rate in the July-November period. (As an aside, did you know that there is a 70% inverse correlation between gasoline prices and consumer confidence?).

Unfortunately, the household net worth-to-disposable income ratio has fallen to a low enough level in the past two quarters to suggest a complete reversal in that savings rate decline in the months ahead, and our biggest concern as we head through the winter months is a renewed rise in the price of gasoline, which has already carved out a bottom. If you recall, last year at this time the consensus was looking for a 3.3% real GDP growth rate for Q1 of 2011; instead we got 0.4% at an annual rate (the stock market actually peaked after the first release of that quarter) primarily because of the run-up in prices at the pump (rising 60 cents).
People who still expect a full recovery have some explaining to do. Specifically, they should tell us where it will come from.

Either households are de-leveraging or they're not. And if they are, they've got a long way to go. Household debt levels have come down from their peaks in '06 - 07. But they are still far higher than they were in the '80s and even the '90s.

At least half...and maybe all...the "growth" of the 20 years leading up to 2007 came from increasing household and financial industry debt levels. And most of it depended on rising housing prices as collateral.

Do you see that happening again? Do you see another source of income or spending gains?

We don't. And without income gains or another borrowing binge, we don't see how a real "recovery" is possible.

But we don't have any more time to think about it. Not today...

We're on our way to South Africa. Stay tuned...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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