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James Altucher: "The Underlevered American Household"

Lets just look at what's wrong with a few items in Jim Altucher's column yesterday, "The Underlevered American Household."

I may have to address the rest of the erroneous analysis in a full column -- but for now, let's stick with the first chart in the article. Jim believes the following chart is "mostly useless."

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click for larger graph

Source: BEA
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We are consuming more than we are earning. I suspect the reason for this is the failure to adapt economically in the post crash environment. Despite Real Income being negative, as a nation, we have not adjusted our consumption habits. Cheap money ala Greenspan has allowed us to party like its 1999. Only its not -- its a post crash world.

The Failure to recognize the significant shift in the wage environment is potentially worrisome, with consumer spending accounting for almost 70% of GDP.

Perhaps a little context might provide some utility. The United States, for the first time since the Great Depression, has a negative personal savings rate. Here's what that looks like graphically:

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77 year chart, Personal Savings Rate
click for larger graph
Jumbo version of this chart is here

The savings spike during WWII was aberrant -- War Bonds, rationing, the lack of consumer goods (the industrial sector shifted to military production) explain why those five years were the all time savings highs.

And the rest of the time -- why was savings rate so much higher throughout the rest of the century?

Jim dismisses it, claiming this "means that according to the way economists working for the government calculate income and expenditures, we are spending more than we make."

That's a snide dismissal of the data. This is not a seasonally adjusted, hedonically altered, absurdly core focused number. This is a simple series that measures savings, spending and income.

Jim also notes that "capital gains are not included in personal income." But neither was it included during the prior three quarters of a century of data.  It is irrelevant to the question of "Are we spending more than we earn?" 

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I cannot so easily dismiss an data which represents an historical anomaly. Indeed, anytime something occurs in a long data series which has been a rarity historically, its worth sitting up and paying notice.

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UPDATE: June 23, 2006 11:37am

Wow, this is a surprisingly popular post -- both the WSJ and Dealbreaker picked it up:

WSJ Blog Roll -- Morning Edition

DealBreaker

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Source:
The Underlevered American Household
James Altucher
RealMoney.com, 6/21/2006 2:30 PM
http://www.thestreet.com/p/_rms/rmoney/marketanalysis/10292988.html

Friday, June 23, 2006 | 06:18 AM | Permalink | Comments (61) | TrackBack (1)
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Comments

I'm mixed and willing to believe either conclusion. What'd be interesting is if there was data to capture what James thinks is missing from the 'savings' and add that back over time to see if there is a net decrease in that number. I'm tempted to believe that since we're comparing apples to apples that the decrease is real. But certainly home and stock ownership are more prevalent now and there is some boost from capital gains. I just don't know how much.

Posted by: noname | Jun 23, 2006 7:40:16 AM