Tuesday, April 8, 2014

Is US Consumer Spending About to Take-Off

I decided to look into the matter of housing starts hitting a recent plateau.  What I think stands out most in the following graph is a kind of out-of-phase correlation between household financial obligations and housing starts.  Though certainly the correlation makes sense!
Graph 1
It almost looks as if I could take the red line (housing starts) and shift it over to the right just a little bit, and then the two would line up almost perfectly.  In fact, I loaded the data into Excel, moved the (quarterly) data over by 10 quarters (2.5 years -or- 30 months), and I produced the following graph.
Graph 2
Pretty neat, huh?  Now, is this any sort of indicator of consumer spending?  First, I should let you know that financial obligations refers to mortgages, rent, auto-loans, homeowner's insurance, property tax and that sort of thing.  That should mean that financial obligations follow housing availability trends, as well as auto availability trends.  But should consumer spending follow the trend in mortgage and rent payments?

Why not?  First, why so?  If you believe in the wealth effect - people get a little richer (produce more) and spend a little more (consume more) - then you might say that consumer spending will have some correlation with housing trends.  As people buy houses, they also buy appliances, furniture, cheap plastic stuff, hardwood floors and so on.  Some of these would be examples of durable goods.  I think there is strong correlation between durable goods and housing starts, so let's see the trend.

Durable goods are only part of personal consumption.  I think the housing market is just as fragmented now as it was in 2005-2006 when places like Los Angeles, Las Vegas, Miami, and Phoenix were experiencing phenomenal housing price gains.  The hotspots in today's market, to me, appear to bee Dallas, Houston, San Fransisco and Los Angeles.

Spurred by big investments in the oil and gas industry as well as the "new tech", many of these markets are experiencing price growth much higher than the national average.  It will be interesting how things play out over the coming years since the top brass in the oil industry got together and declared $100 oil to be the new $20 oil.


  1. Oh, these graphs are magnificent!!!
    Good post Luke.

  2. I think there is a lot of strong indication that consumer spending will begin to take off, despite some warning signs.

    Looking at delinquency rates, charge-off rate and finance-rates (thank you QE) - I think provide more indication that consumer spending could take off.