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Anticipating Consumer Slow Downs

On Wednesday, we noted that the consumer had become increasingly leveraged. Yesterday, we looked at the relationship between consumer spending slowdowns, and Bear Markets.

Today, we go back even further up the causation ladder, to look at the question "How can we anticipate when Consumer Spending is about to slow?"

It turns out there's a reliable tell that gives lots of warning prior to a Consumer Spending slowdown: Real hourly earnings.

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Best leading indicator of real consumer spending (PCE) downturns
click for larger chart
      

Source:  Joseph H. Ellis, Ahead of the Curve

Ellis notes:

Real hourly earnings downtrends of a year or longer have been a generally reliable leading indicator of consumer-spending downtrends. Real hourly earnings gave particularly notable advance warning of the 2000–2002 economic downturn.

Real hourly earnings are reported on a pretax basis. Therefore, in the mid-1980s and 2003-early 2004, strong gains in consumer spending despite slowing real earnings were an anomaly reflecting federal tax cuts in those periods.

Friday, February 10, 2006 | 08:45 AM | Permalink | Comments (2) | TrackBack (0)
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Comments

OT question for you: Why do you think an increase in the supply of 30 Year Treasuries caused price increases in both the 30 Year & 10 Year Treasuries?

Posted by: DJ | Feb 10, 2006 10:02:12 AM