New Year Rising

As we start off the new year, things should start to improve in the U.S. economy.  As I mentioned in my “Year in Review” blog last week, the recession is finally almost over.  Real GDP has finally surpassed the level it was back in 2007.

Another indicator that the recession is almost over – household debt as a percentage of disposable income, or income after taxes.  Household debt includes mortgages, car payments, student loans and credit cards.  As the chart below shows, U.S. households have finally paid down, cut back or defaulted on a lot of debt since 2007.  We started to  reduce our debt load during the recession of 2001 but the 9/11 attacks prompted a wave of patriotic purchasing encourged by the Bush administration and aided by easy home refinancing. (Click to enlarge in separate tab)

We are still short of a healthy 14 million in sales of cars and light trucks but sales continue to increase from the depressed levels of late 2009.

As I noted last week, retail spending is still not back to the levels of 2006 – 2007 but those retail sales were fueled by people charging far more than they could reasonably pay for.  When I look at inflation adjusted, or real, retail sales from 1947 – 2001, the trend line (mine) projects real retail sales in 2011 of about $160B. 

What did we have in 2011?  Over $170B!

Last week I was rather dour in my assessment of this half-assed economy but I was taking a short term view, comparing sales and GDP today to the bloated bubble levels of 2007, an unrealistic comparison.

Construction spending has cratered in the past four years as we wring out the excesses of the past decade.

But when I draw trend lines showing growth we can see just how inflated the construction bubble was from the mid-90s till 2007.

In the past two years we have formed a “bottoming” pattern that indicates that the downward slide in spending has ended.

Well meaning but bad policies, poorly regulated mortgage brokers, consumers eager to get in on the housing gravy train, banks playing 3 card monte with bundled mortgage security products, politicians eager to please and get re-elected – so many factors that led to an overgrown forest.  And then the fire.  Now there are green shoots emerging.

Before you get to singing “Happy Days Are Here Again”, there are some fundamental long term – decades long, long term – concerns and trends that I will look at this weekend after I sharpen my red pencil. 🙂

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