Mish's Global Economic Trend Analysis

---

• Haircut Deficit: Kids Living in Basements a Drag on U.S. Services Spending; Since Recession Ended, Durable Goods +34%, Services +6.3%; What's Next?
• Twenty-Three Hurt in Spain Protest Against Anti-Protest Legislation; Peripheral Europe Powder Keg Ready to Explode
• Italy "Pitchfork Protests" Continue; "LettaSpeak" Translation; Nonworking Parts

Haircut Deficit: Kids Living in Basements a Drag on U.S. Services Spending; Since Recession Ended, Durable Goods +34%, Services +6.3%; What's Next? Posted: 15 Dec 2013 06:52 PM PST The recession ended in mid-2009. Since then spending on services has lagged spending on durable goods by a huge margin. Why? A record number of Millennials, adults aged 18 to 32, put off household formation and stay at home to live with parents. Why? No job and/or huge college debt with no way to pay it back. The jobless rate for Americans aged 18 to 19 years old stood at 19.2%. Unemployment among 20- to 24-year-olds is 11.6 percent. In contrast, the overall unemployment rate is 7%. Kids Living in Basements a Drag on U.S. Services Spending Bloomberg reports on the Haircut Deficit, Kids Living in Basements a Drag on U.S. Services Spending. Consumer spending on services -- everything from rents and water bills to health care and haircuts -- is a laggard as the economy has recovered from the worst recession since the Great Depression. Such expenditures adjusted for inflation have risen 6.3 percent since mid-2009, compared with a 34 percent surge in outlays on durable goods such as automobiles and appliances, according to data from the Commerce Department in Washington. Purchases of durable goods have been quicker to recover. Some of the growth is driven by record-low interest rates, supporting auto sales that account for almost a quarter of the increase in spending on long-lasting items. Another contributor is pent-up demand for replacement of aging household goods such as appliances and furniture. Neither force has much effect on purchases of services, which are more likely than durable goods to be paid for in cash.  From 2008 through this year, the annual rise in the number of households has averaged less than 1 percent. That compares with an average year-over-year gain of about 1.7 percent in Census Bureau data going back to 1948. "If you look at household size, the average number of people per household has gone up," said Mark Vitner, a senior economist in Charlotte, North Carolina, at Wells Fargo & Co., the biggest U.S. home lender. "Consumption of household services by person has actually gone down because it's the same amount of space consumed by three people instead of two." Millennials -- adults aged 18 to 32 -- are still slow to set out on their own more than four years after the recession ended, according to an Oct. 18 report by the Pew Research Center in Washington. Just over one in three head their own households, close to a 38-year low set in 2010. Growing income inequality also may be playing a role, squeezing the take-home pay of those less well-off and forcing them to scrimp on spending, said William Dunkelberg, chief economist of the National Federation of Business. The richest 10 percent of Americans last year earned more than half of all income, the largest total since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. The steep rise in spending on durable goods has largely been fueled by a surge in loans to purchase automobiles. Outstanding automotive loan balances climbed to a record-high $782.9 billion in the third quarter, $103 billion more than the same three-month period in 2012, according to seven years of data from industry researcher Experian Automotive. What's Next? Via email, a close friend "BC" commented on "What's Next" The top 1-10% receive 50% of income in an economy in which 72% of GDP is Personal Consumption Expenditures (PCE). Unless the top 10% increase spending ~6%/yr., US real final sales per capita will be near 0% at the trend population and reported deflator. The bottom 90%, who receive the other 50% of income, are not experiencing any growth of purchasing power after factoring in taxes, inflation, and debt service. They contribute little-to-nothing in growth of real final sales per capita. Once the Boomer top 10-20% replace their auto fleets, real retail sales and real final sales per capita will again contract. Wealth Effect I would add that some of the spending, especially on autos, is due to the wealth effect of rising stock market and recovery in home prices. A substantial (and lengthy) decline in the stock market is long overdue. And when it comes it will pressure sales and services in general. What's coming isn't pretty even though the precise timing is unknown. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Twenty-Three Hurt in Spain Protest Against Anti-Protest Legislation; Peripheral Europe Powder Keg Ready to Explode Posted: 15 Dec 2013 02:08 PM PST Protests are underway in Madrid. Riot police were called out to suppress the demonstrations. At least 23 are hurt including 14 police officers. The protesters are protesting proposed anti-protest legislation including a fine of €30,000 for "Insulting Police Officers" and a whopping €600,000 for demonstrating near parliament without permission. Please consider Clashes in Madrid as demonstrators rally against anti-protest bill. At least 23 people have been hurt in clashes outside the Spanish Parliament in Madrid, as hundreds of protesters gathered on Saturday to demonstrate against newly proposed anti-protest legislation. The demonstrators held signs that said 'Freedom to protest' and 'People's Party, shame of Spain!' while police and barricades prevented them from getting any closer to the parliament building. The new law, drafted by Spain's ruling People's Party, would introduce fines for activists taking part in unauthorized protests, publishing images of police, or interrupting public events. Demonstrating near parliament without permission could result in a fine as high as 600,000 euro (US$824,040), while insulting a police officer could cost a demonstrator up to 30,000 euro ($41,202). Images from RT Click on the top link for more images and an RT video. Peripheral Europe Powder Keg Ready to Explode The anti-protest legislation suggests things are seriously out of control in Spain. But it's far worse than that. Amazingly stiff anti-protest legislation coupled with the rise of the neo-Nazi "Golden Dawn" party in Greece, the Catalan separatist  movement in Spain, and numerous "pitchfork protests" in Italy, strongly suggests peripheral Europe is a powder keg ready to explode. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Italy "Pitchfork Protests" Continue; "LettaSpeak" Translation; Nonworking Parts Posted: 15 Dec 2013 11:26 AM PST The "pitchfork protests" in Italy have now gone on for a week. RT reports 'Pitchfork' protesters clash with police in week of anti-austerity rallies Protesters in several Italian cities have clashed with police amid anti-austerity protests which have lasted for almost one week. The so-called "Pitchfork" protesters are marching against cuts and calling for the government to resign. Demonstrators hit Rome, Venice, and Turin on Saturday. Students threw paint bombs at police in Turin, which has been the epicenter of the protests. The city has seen the largest number of clashes with law enforcement, with officers using tear gas to disperse demonstrators who hurled stones. Turin protesters also blocked rail traffic and stopped trains at the city's main stations. Truckers - protesting high taxes and fuel prices - and students brought traffic to a virtual standstill earlier this week. Activists pitched tents on a bridge across a river bordering France, near the town of Ventimiglia, forcing police to step in. City authorities ordered reinforcement from security forces. Activists have promised larger demonstrations in the capital next week. The protests are being staged in the name of the Forconi – or Pitchfork – movement, which was originally organized by a group of Sicilian farmers. "There are millions of us and we are growing by the hour. This government has to go," Reuters quoted one of the leaders of the protests, Danilo Calvani, as saying earlier this week. As demonstrators blame the two-year recession on politicians, they are demanding that the government be replaced and parliament be dissolved. Fourteen policemen have been injured over the past several days. Many shops and other properties have been damaged. On Thursday, Interior Minister Angelino Alfano voiced concerns that the unrest could "lead to a spiral of rebellion against national and European institutions." He told lawmakers that although the government understood "the suffering of poor people," it would not allow the violence to continue. Alfano said that the government has tried to talk with the protesters, but has thus far failed because there are many different groups and no clear leaders.  Protest Images RT has four excellent images of the protests. Here are a couple of them. Italy's "Pitchfork Protests" Spread to Rome; Interior Minister Warns of "Drift Into Rebellion" Last Thursday I reported Italy's "Pitchfork Protests" Spread to Rome; Interior Minister Warns of "Drift Into Rebellion". "LettaSpeak" Translation In response to my article, reader George offered comments on this paragraph from my article: "Letta has warned repeatedly that opposition to the government and the EU is growing strongly, fuelled by sacrifices needed to keep public finances in order and which could result in a massive anti-EU vote in next year's European parliamentary elections." George says "Hello Mish. The sacrifices Letta refers to are nothing more than taxes paid to an oligarchic government, so the government can pay interest to private bankers, on money the bankers had lent to the government, money that the bankers worked so hard on their computers to create." Nonworking Parts That's part of it. Some of the taxes go to support public unions, and the rest goes to government bureaucrats doing everything they can to not only pad their own pockets but also to stay in power. I leave it to the reader to assign percentages to each of the "nonworking" parts. The percentage of working parts is small and can safely be ignored in assignment of where tax money goes. And please note the irony. The "pitchfork" movement is up in arms because government is not handing out enough jobs, giving away enough free money, and giving away enough free services. Here's the "real" pitchfork beef: Most of them are upset because they're not in on the scam. That leads to the next question: How much would it cost to do what the movement wants, and where would the money come from? As bad as all this is, the Euro made matters far worse. It can't and won't last. Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610