Wednesday, September 9, 2009

Keeping It Simple

The above graph tracks the consumer as a share of our economy. The ratio has increased over the years, but i believe that it is safe to say that consumption has been a large part of our economy for quite some time. This ratio topped 70% (70.14% to be exact) for only the second time in 2008.

The Fed's release of consumer credit data garnered considerable attention yesterday. The graph below tracks the last few years of data:

The trend has clearly been broken: 6 consecutive months of declining, declining in 10 of the last 12 months.

Using a simple regression model:

Forecast of consumer credit stabilizing at July's level.

- Personal consumption expenditures drop to $9.44 trillion

- Nominal GDP drops to $13.49 trillion

- Annual decline of 6.6% in Nominal GDP

In conclusion, with rising unemployment, a negative wealth effect (year over year) and falling available credit, I do not see a significant rebound in growth.

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