Economic Notes: Nuanced Negatives
3/13/2009
Since the consumer accounts for the lion’s share of U.S. economic activity, its every twitch attracts attention – but only some twitches are noteworthy. The Census Bureau’s report that retail sales had a monthly (m/m) decline of only 0.1% in February deserves attention, particularly since January’s sales were up (+1.8% m/m) – as were February’s if you exclude auto sales (now auditioning for a remake of Night of the Living Dead).
Clearly, these comparisons are against last quarter’s abysmally weak numbers. Compared to 12 months earlier (y/y), sales in 2009’s first two months were off by 10.3% (-6.9% ex-auto). This may explain the 5.7% jump in liquor sales.
The Census Bureau’s report on international trade in January also contained mixed news. The nation’s trade deficit fell to a seven-year low as exports of goods and services (-16.4%) fell less rapidly y/y than imports (-22.8%).
Although these data may be just nuanced negatives, keep in mind the primary law of bungee jumping: you don’t start rising until the falling stops.
There were no nuanced negatives in the Federal Reserve’s report on the “flow of funds accounts,” a quarterly summary of the nation’s financial well-being.
The Fed reports that Americans’ net worth fell 17.8% y/y. At the end of 2008, U.S. households were worth $51.5 trillion – about the same as at the end of 2004. (And these data are not adjusted for inflation.)
The y/y loss in net worth (~$11.3 trillion) was equivalent to 80% of all of the goods and services (GDP) that Americans produced in 2008.
While declines in net worth are not unprecedented, the scale of 2008’s drop is. Earlier this decade (2000-2002), Americans’ net worth declined 3.6%. Then, the damage was concentrated in financial assets (due to the bursting of the dot-com bubble) and partially offset by rising real estate values.
Unlike that episode, however, 2008’s damage to Americans’ balance sheets was far greater and more broadly spread, with financial assets (e.g., pensions, equities, mutual funds, etc.) dropping $8.9 trillion (-18.0%) and homeowners’ real estate equity (net of mortgages) off $2.1 trillion (-21.1%).
Thank Bernie Madoff for 0.4% of the total loss.
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