Household Wealth Up, Income...Not So Much

Takeaway: Higher Highs in Household Net Wealth. Personal income and spending improved in august but growth should remain constrained near-term.

We’re not big into “maintenance” research at Hedgeye but, at the same time, contextualizing marginal macro changes (i.e. the ones that matter) requires continually grinding through the incremental big picture data points. 

 

This morning’s Consumer Spending and Income data and Tuesday’s 2Q13 Flow of Funds data from the Fed aren’t  particularly actionable from an investment perspective, but they are worth a quick highlight. 

 

Below is an updated snapshot of the U.S. Household Balance Sheet from the latest Flow of Funds report from the Federal Reserve.   The continued improvement in Household Net wealth shouldn’t come as a surprise given the lack of aggregate household credit growth and the ongoing re-flation in real estate and financial asset prices. 

 

As of the end of 2Q13, Household Net Wealth is well above the prior 2007 peak on a nominal basis, flat on an inflation adjusted basis and -3.4% vs prior highs after adjusting for both inflation and the number of households (ie. inflation adjusted net worth per household).   

 

Household real estate values, currently at $18.6T (21% of total assets), grew at a rate of +11.9% YoY and remained a primary driver of net wealth gains in 2Q13.  We continue to expect positive growth in property values, albeit a slower rate of improvement than we’ve observed over the TTM,  to support further balance sheet improvement over the intermediate and longer-term. 

 

Putting aside the disproportionate benefit and wealth equality implications stemming from financial asset price inflation, ongoing strengthening in the aggregate household balance sheet remains an obvious positive as we continue to emerge on the other side of a long-term, domestic credit cycle.    

 

Household Wealth Up, Income...Not So Much - HH BS 2Q13

 

 

Consumer Income & Spending:  Upside Still Constrained

 

Today’s preliminary estimates from the BEA showed Personal Income grew 0.4% MoM  in August while Consumer Spending advanced +0.3% alongside a tick higher in the Savings Rate to 4.6% from 4.5% in July.   

 

On the income side, personal and disposable income growth accelerated on both a MoM and YoY basis while Government sourced income (~17% of the Workforce) remained a discrete drag on DPI growth.    

 

On the spending side, consumption of Non-durables decelerated on both a MoM and YoY basis (after accelerating last month) while spending on Services and Durables both accelerated sequentially (after decelerating last month).

 

From a multi-month Trend perspective, accelerating spending on goods has helped offset a modest deceleration in consumption of services. (see table below for a detailed breakdown).   

 

Inflation remained muted with core PCE – the key measure for the Fed – mired at 1.2% growth. 

 

Summarily, Personal Income accelerated sequentially but with the savings rate rising and compensation of government employees still growing negatively (due to ongoing job loss and the negative income effects from furloughs – see Here for a fuller discussion) consumer spending growth remained middling. 

 

The confluence of smallish credit growth, a static savings rate and a fiscal policy related drag on (already muted) income growth should serve to constrain the upside in consumption growth nearer term.  

 

Enjoy the weekend.  

 

Household Wealth Up, Income...Not So Much - Income   Spending 092613 

 

Christian B. Drake

Senior Analyst


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more