Temporary uptick in US consumer spending?
Problem is, employment growth is hardly visible and, as a result, income growth remains muted. While the issues mentioned above are contributing to falling savings, the impact will be disastrous for the over-leveraged US consumers in the long run, although the short term impact might be seen as positive.
Lets point to the housing market for the time being. According to the Northwestern University researchers, 31% of all U.S. foreclosures last month were initiated by homeowners who were is a mess but nonetheless could keep with their payments. That compares with 22% the same month last year. According to First American Corelogic, their House Price Index or HPI forecast turned less optimistic in the latest update, showing a softer recovery than in previous forecasts. Their forecasts for the inventory of homes for sale have risen as interest rates are expected to rise, tax credits expire, and slower than expected sales over the winter due to the weather. Collectively these effects act to contract demand (put downward pressure on prices).
If indeed house prices soften as expected and over enthusiastic equity prices start to adjust, another blow to consumer spending is expected, unless there is a dramatic increase in employment. To me, this is not going to happen. It would make sense to consider the current spurt as an aberration.
