Enis’s Macro Wrap – The Most Bullish Chart for the U.S. Consumer

by Enis October 2, 2012 7:36 am • Commentary

With U.S. markets less than 10% from all-time highs, some commentators get incredulous because the state of the country feels much worse than 5 years ago.  The trend growth rate of U.S. GDP seems permanently lower.  The European banking system seems permanently impaired.  Robust growth in emerging markets is no longer a given.  And the worldwide debt load has massively increased.

But today’s chart provides one data point that shows a clear improvement for the U.S. consumer compared to 5 years ago.  Courtesy of the Calafia Beach Pundit blog, it shows the U.S. Households’ Financial Burdens as a % of Disposable Income:



Low interest rates are the primary reason for this reduction in monthly interest payments.  The long-term verdict is no doubt still to be decided, but central bank action has been an obvious boon to debtors in the short-run.  Interest payments on debt as a percentage of income are near the lows of the last 30 years, freeing up consumers to continue spending in the face of the many headwinds I described above.

With interest rates now near 0 across most maturities, most of the juice from lowered interest payments has probably been squeezed out of the consumer at this point.  Going forward, personal income growth is likely necessary to stimulate further spending.  The fiscal cliff’s resolution should be particularly relevant in that regard.

Markets overnight:

  • China closed again, but Asia ex-Japan rallied for most part, with Australia and New Zealand the strongest markets overnight after a rate cut and dovish commentary by the RBA (Royal Bank of Australia)
  • Europe opened in the red in sympathy with the afternoon selloff in the U.S. yesterday, but rallied into the green within 1 hour of the open, and is trading up about 0.5%.  Speculation that Spain is close to accepting a bailout (and subsequent ECB bond buying), in spite of German opposition, has been cited as one reason for the rally.  SPX futures up 0.5%
  • The dollar, Treasuries, and commodities are again much less indicative of classic risk-on, as all 3 asset classes are trading close to flat.  The Aussie dollar down 0.5% after the rate cut
  • Mosaic missed earnings estimates this morning, trading down 2%, after slowed potash production on soft demand in India and China.
  • Light economic calendar today