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.