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Economist Gary Shilling, excellent forecaster of past recessions and
chief pooh-pooher of today’s market enthusiasm, thinks consumers are in worse shape than they’re letting on …[and,] while his general pessimism puts him very much at odds with the market for the first few months of the year, it looks like he’s gaining some followers. [Take a look at his] point-by-point explanations of his opinions, [supported by charts , and see if you, too, come to the same conclusions.] Words: 740
So says Dee Gill (www.Ycharts.com) in edited excerpts from an article* posted on SeekingAlpha.com which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Gill goes on to say, in part:
Shilling forecasts a recession this year, a prediction that a falling unemployment rate and rising retail sales figures [has] done little to change. Consumers buying fun stuff like iPads and clothing [has] ramped up retail sales figures this year and brought along stock prices in several sectors with them [Read: Stop! If You Sell in May and Go Away This Year You’ll Regret It – Here’s Why] as the chart of the S&P 500 shows below but he is skeptical of using consumer behavior as a reliable indicator of the general public’s actual situation.
By many accounts, consumers have even less money than they did a year ago, because prices of goods have gone up [see chart below], and not just gasoline prices, which he considers of limited importance. [Read: An Inflation Inferno is Expected – but When?]
In the past year, earnings have not gone up at the pace of costs which means consumers are using more savings or borrowing to buy things. In the past year alone, debt has edged up, but the savings rate has dropped sharply [see chart below]. Shilling sees this as an unsustainable situation that will lead to a drop in consumer confidence – another indicator showing happy times recently – before wages and employment increase. [Read: Have Your Say in World Consumer Confidence Index Survey – Here’s How and Majority of Americans Finally Agree on Something – and Its Economic!]
[While] the overall employment rate has gone down he points out that a drop in claims for unemployment, or even a rise in job openings, isn’t the same as new hiring. Employers are being very picky, and a lot of today’s unemployed have been out of the workforce so long that their skills are rusty or unappreciated. [Read: What Does ‘Structural’ Unemployment Mean? What Does It Mean for Future Economic Growth ?] Since recovery began, some unemployed have dropped out of the job search, and the length of time for unemployment has risen sharply [as the chart below clearly shows].
Payroll numbers for the past couple of year don’t suggest a promising trend either [as the chart below shows].
Meanwhile, home mortgages that still exceed market values keep qualified workers from moving for better job opportunities. Shilling warns of a possible 20% additional drop in housing prices [Read: U.S. House Prices Have MUCH Further To Fall! Here’s Why] – a prediction that got more attention when January’s prices broke a steady decline and remained about flat. If this really is the restart of falling prices, those consumer confidence figures behind so much of the market’s happiness this year will surely tank.
Shilling’s reason for bearishness is a lot more complicated than our little summary here can show. We haven’t even touched on his cynicism about corporate earnings that beat forecasts, or his views that still-broke state and local governments can seriously hurt recovery, for example, [Read: Municipal Bankruptcy Crisis in U.S. to Have Dire National Consequences! Here’s Why – and How] or, for that matter, on the reasons that multitudes think he’s way off base in his conclusions.
In coming months, when the S&P takes a dive on some worrisome consumer indicator [Read: Charles Nenner: Dow to Peak in 2012 and Then Decline to 5,000!], consider Shilling’s reasoning. It’ll be one more tool in understanding whether you’re looking at a buying opportunity or something else entirely [Read: Richard Russell’s Alarming (Alarmist?) Views on the VERY Near Future: Crime, Chaos, Collapse & Skyrocketing Gold].
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
*http://seekingalpha.com/article/515441-freaking-out-with-bearish-economist-gary-shilling-chart-by-chart (To access the article please copy the URL and paste it into your browser.)
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