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Excerpts from: The Surprising Threat to the American Economy – Barron’s

November 29, 2017

Excerpts from: The Surprising Threat to the American Economy – Barron’s

“Real U.S. personal spending is growing at about 2.6% year over year, when it should be closer to 4%, given the much-ballyhooed global recovery. Year-over-year growth in U.S. retail sales peaked at 8.3% in mid-2011 and has since slowed to 4.5%. Consensus expectations for U.S. consumers to shop more and more to extend our 95-month-long expansion may be doomed to disappoint.”

“So what’s curbing consumers’ enthusiasm? For a start, our consumption boom of the past few decades was fueled by a massive credit expansion, but that may have taken us as far as we can go. Total household debt in the last quarter reached a record $12.73 trillion, surpassing the $12.68 trillion that Americans owed at the height of the housing bubble. Borrowing costs are still historically low—the 30-year mortgage rate is near 3.9%, and mortgage debt-service payments recently were just 4.4% of disposable income, the lowest in decades.”

“THERE’S A REASON “MATERIAL GIRL” EVOKES SUCH NOSTALGIA today: It’s because we’re no longer living in the same material world. Think of the U.S. as a big company—let’s call it America Inc.—with more than 100 million full-time workers, $18 trillion in sales, and $20 trillion in debt. The challenge it faces of middling growth is further compounded by escalating expenses. A detailed 2016 study by Gallup senior economist Jonathan Rothwell found that since 2007, real U.S. gross domestic product per capita has grown by just 1%, but our expenses have only gotten bigger. In particular, the share of national spending eaten up by three items—health care, housing, and education—has ballooned from 25% in 1980 to more than 36% by 2015.”

 

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