What Will Recovery Look Like?
Mish has a post about consumer spending and job creation.
His post really points to why I am such a bear on this market and I am a long term bear.
Many think that consumer spending will return once job creation picks up. Actually, there is so much consumer debt, and for many, no reasonable way to service it, that consumer spending is likely to remain weak and defaults high even after unemployment starts inching back down.
My husband is a lawyer and our household income has always been in the top 20% of households because of his income. We were supposed to be that double income no kids high spending consumer, but the housing bubble of 93 made it so we spent an enormous amount of our household income on housing and it simply did not seem to get easier. It did not get easier until we sold the home and I took my current job. So, for 14 years, without a family to support, we were exceptionally modest consumers relative to income. And what I saw around me is many peers were not making ends meet, or just staying flat, and not making any kind of dent into debt at all. I suppose I was always concerned about the future so I pushed to make a dent into debt, and it is what saved us when my husband got a 23% pay cut.
I used to say that if everyone spent the way we did the economy would stall to a halt, and I don't see any other reality except that many people have a level of debt that leaves very little to stimulate the economy, which will make the economy sluggish for years. I got rid of 19 year old vehicle last year, but had I stayed in Vancouver I would still be driving it and simply would not have plans to replace it.
I am very fortunate right now in this economy, but I was chatting with an engineer friend and getting work has been so bad for him he described his finances as an out of control train that seems to be coming to the end of the tracks... He is doing work unrelated to his career, at about half the income, just to have some income coming in. I think this kind of thing is happening at a rate not seen in most people's living memory.