UNLUCKY 7

The consumption recession continues with today’s release of Consumer Credit data for August by the Federal Reserve which showed a $12 billion dollar contraction for the month – steeper than forecast and the 7th consecutive decline.

 

Consumer spending is a function of several things, the largest of which is employment.  With federal unemployment expected to thrust through 10 percent in 2009, the elimination of jobs in and of itself will continue to mount pressure on people spending money that they do not yet have.

 

The consumer propensity to spend over the past decade was fueled by plentiful consumer credit.   U.S. household debt as a percentage of annual disposable personal income was at its highest rate of 127% at the end of 2007 versus 77% in 1990 and, though declining, remains at elevated levels today.

 

In 1981, U.S. private debt was 123% of GDP; by the third quarter of 2008, it was 290%. The credit crisis and the recessions, coupled with an unprecedented amount of consumer debt, have led to all-time high credit card delinquencies.   High delinquency rates, in the face of increasing unemployment, means that credit cards will not be repaid which eliminates capacity to spend and makes less credit available to consumers.  With credit contracting, consumers will likely pull back their spending and save more or pay down debt.

 

The bottom line is that the continuing economic uncertainty, continued job losses and a contraction in credit will alter changes in consumers’ spending behavior for some time.   Until we start to see more convincing signs of stability in employment, home value appreciation, and bank credit expanding, meaningful economic recovery remains elusive.

 

Howard Penney

Managing Director

 

Andrew Barber

Director

 

UNLUCKY 7 - a1

 


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