Read the newspapers and we're at the brink: Global Gloom, Deepening Pessimism, Markets Drop Sharply. Is another Great Depression just around the corner? Is the US slumping to a decade of stagnation a la Japan? Is China now eating the lunch we thought we had bought cheap? Is our financial system just a Vegas vacation, making the house rich but producing no growth?
The answer is no, even though China is nibbling at that burrito and bankers are at the slots. The hero coming to the rescue of the US economy is that trusty favorite, the US Consumer. It's a Consumer with flaws, like any modern hero, with a tendency to binge, and again wielding the weapon that often leads to trouble: the Credit Card.
After 28 straight months of pulling back on the reins, consumers have finally found a level of debt that feels good enough to allow more spending to flow. During those 28 months, the level of consumer debt per person [let's leave mortgages out of this] fell 13 percent, from $8,600 to $7,500. During the last recession with a real estate crash, 20 years ago, consumer debt dropped 14 percent. Sure, many things are different now, but some things aren't.
What makes me think a one month up-tick means anything? Will I look foolish in October? There's supporting evidence. The credit card delinquency rate is now 3.6 percent, down from 6.5 in 2009. Retail sales are up 6 percent this year, even after subtracting the higher prices we're paying for gas. And 1.3 million net new jobs were created in the last 12 months. Credit up, sales up, jobs up. Maybe that bond crisis in Greece is the banana peel that eventually puts us on our derriere. Or maybe bad news just makes good newspaper copy.
The news on the real estate front is both good and bad. Bad because the average home price in the second quarter fell 4 percent over last year; good because the market is now wringing out the last problems instead if being delayed by misguided policies. We built 5 million too many homes: we'll only sell 'em by cutting prices. Any consumer knows that!
What do you think?