Tuesday, November 21, 2006

Belief in the Tooth Fairy

Bloomberg survey reports this Quarter may be better than the last, with an annual GDP growth rate of 2.5%. The Problem with this assessment comes in that it assumes consistent Consumer response, based upon Payroll and Income data. The drop in Housing pricing has led Consumers to start paying down their Consumer Debt, and the index and Bloomberg survey would require further Consumer debt acquisition rates as previously based upon Income increases during the Housing boom. It seems unlikely.

The Consumer Federation of America and the Credit Union National Association found 7% more Shoppers intending to spend less this Christmas Season than a year ago (32% instead of 25%). The survey states one can discount these statements to some degree, because Shoppers traditionally spend more than their intention. Almost all Shoppers cited higher Household Costs, or the increased cost of Christmas products, as the major deterrent. Master Card finds 3-out-of-4 Shoppers using Debit Cards instead of Credit Cards. We are still prior to the Christmas Season, but this time, the Shoppers might mean it.

A Wall Street Journal survey of economists reports by a 2 to 1 margin that the Housing Market slowdown is over. The economists expect the Office of Federal Housing Enterprise Oversight index to fall only 0.5% next year, which contrasts with a 13.4% increase in 2005. Reality Check: Estimate that Federal Tax credits for Housing account for approx. some 7% of the double-digit increases of yesteryears, and that Inflation overall in the industry may have increased by 4-6%, and how many double-digit increase years were there? The major trouble with Tax breaks comes in inflationary pressure built in to the Tax breaks, and the fact that actual inflation nullifies the impact of the Tax breaks as Pricing accelerates. Do some people sound a little wistful around here? lgl

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