On May 19, 2010, at 5:34 PM, SA wrote:
> That's not what I've seen. In Q1, three-fourths of GDP growth came
> from consumption growth, but roughly 100% of consumption growth was
> financed by (1) growth in transfer income (i.e., the deficit);
53% of income growth in the first quarter came from transfers, and 43% from wages & salaries.
> and (2) reduction in personal saving. Reduction in personal saving
> can mean running down savings or taking on debt - the two have
> equivalent effects on the balance-sheet bottom line. See here:
>
> http://www.calculatedriskblog.com/2010/05/q1-pce-growth-came-from-transfer.html
>
> There's a widespread belief that consumer credit has shrunken
> dramatically, but that's not entirely accurate. "CC outstanding"
> collapsed. But most of that came from banks writing off debt, not
> from a reduction in new extensions of CC. If you strip out charge-
> offs, consumer credit growth is currently running (eyeballing the
> chart at the link below) at about its 1995-2004 average, or only a
> bit below its 1986-2008 average. Not quite the nosebleed territory
> of 2004-08, but definitely within the normal bounds of the longer
> high-debt era.
Actually, most of the debt growth in the 1990s and early 2000s was mortgage-related, not credit cards. Revolving credit (mostly credit cards) was about 8.3% of after-tax income in 1996; it was 8.7% in 2007. So growing at the 1995-2004 average isn't all that major. Plus, the writeoff figures only go through the end of 2009 - we don't yet know what's going on in early 2010.
In any case, this doesn't have much bearing on what I'd said earlier - that the revival in retail sales, which only began in late 2009, is being driven by luxury sales (a series that, by the way, has a good correlation with stock prices). So the upper brackets are spending, not saving - which is entirely consistent with a decline in personal saving. Even adjusting for writeoffs, there's not a lot of borrowing going on.
Doug