Courtesy of The Automatic Earth.
Jack Delano Milk Woman Taking Over In Wartime, Bryn Mawr, Pa. June 1943
175,000 new jobs (we await revisions) and a rising unemployment rate (6.7%). Which was not due to people re-entering the labor force, as has been suggested, since the labor force participation rate remained stuck at 63%. This hasn’t been going anywhere for years now, it’s all stuck around 150,000 or so – the running to stand still level – , sometimes up, sometimes down, with lots of revisions. It should worry the pants off of America, but stock markets set new records on a regular basis instead.
Since the real economy is hardly budging at all, the “new profits” can only come from QE-esque money streams, and that, after 5 years now, is getting extremely worrisome. Janet Yellen may keep it up a while longer, but there’s so much inert volatility (aka volatile inertia) built in to the US economy by now that is has become inevitable that an infinitely small spark can set the whole thing on fire, let alone an escalating conflict like Crimea.
The US economy has no resilience left, it’s a severely overworked one trick pony that can’t, as should be organic and obvious, make up for losses in one field with gains in another, since all gains have come from one and the same source for years now. It’s an accident waiting to happen, and it has no defenses left against any such accident: they’ve been spent on various QEs, and used as a defense against truth finding, not crisis. How bad things are is illustrated in this graph I picked up at Zero Hedge:
Personal savings (yoy), personal income (yoy), GDP (yoy), everything is on a downward trend as, moreover, household debt levels have risen fast. Where on earth would GDP and incomes be without that debt? If you’re even a teeny weeny little faint of heart, you might not want to give that too much thought. And besides, there’s no shortage of good news, right? Like this from Bloomberg:
US Household Worth Climbs by $2.95 Trillion to Record $80.7 trillion
Net worth for households and non-profit groups rose by $2.95 trillion in the fourth quarter, or 3.8% from the previous three months, to a record $80.7 trillion,
• The value of financial assets, including stocks and pension fund holdings, held by American households increased by $2.52 trillion in the fourth quarter, according to today’s Fed report. The Standard & Poor’s 500 Index climbed 9.9% from Sept. 30 to Dec. 31, capping the best yearly gain since 1997.
• Household net worth was $11.8 trillion greater than its pre-recession peak of $68.8 trillion reached in the second quarter of 2007.
Does that look good or what? Well, it does, if you don’t read the last few paragraphs:
• Household debt increased at a 0.4% annualized rate last quarter, today’s Fed report showed. Mortgage borrowing dropped at a 1% pace. Other forms of consumer credit, including auto and student loans, increased at a 5.4% pace.
• For all of 2013, household debt climbed 0.9%, the biggest gain since 2007, even as Americans continued to pay down home loans. Mortgage borrowing fell 0.8%, the smallest drop since 2008, which marked the first year of the recession.
• Total non-financial debt increased at a 5.4% annual pace last quarter, the most in a year. Federal government obligations jumped by 11.6%, the biggest gain since the first three months of 2012.
Household worth rises at the same time that household debt does. Yes, sure. Federal debt up 11.6%, and the Fed still adds $65 billion a month.
We’re basking in the blinding light of a mirage that’s set to blow. One spark is all it will take. There are no firefighters left, and no water to extinguish the flames.
What could create that spark? Ukraine, obviously, people will panic the moment the first shot is fired. It’s not as if the US exudes confidence in the matter, but that is of minor importance, stocks would drown regardless.
Another possibility would be the housing market, and in general a continuation of rising interest rates in the real economy. As Michael Lombardi explains:
Why the U.S. Housing Market Recovery Will Falter This Year
• … from their peak in 2007 to their low in late 2011, U.S. home prices fell by about 30%. Since then, prices in the housing market have improved, but they are still down about 20% compared to 2007. Basically, home prices have recouped only one-third of their losses from the 2007 real estate crash.
• … the interest rate on the 30-year fixed mortgage tracked by Freddie Mac increased to 4.43% in January of this year from 3.41% in January of 2013.
• … mortgage rates have increased by 30% in one year’s time. With the Federal Reserve cutting back on its quantitative easing program, interest rates are expected to continue their path upwards in 2014.
• … The U.S. Mortgage Bankers Association reported last week that its index, which tracks mortgage activity (of both refinanced and new home purchases), fell 8.5% in the week ended February 21.
• … If there is one thing the housing market detests, it’s rising interest rates. Higher interest rates simply push would-be homebuyers away. And with rates expected to continue rising in 2014, I see the housing market rebound stagnating this year.
One spark to a defenseless system with far too few moving parts left and overflowing with volatility. The US economy is a sitting duck dead in the water.
