Part of this slowdown in consumer spending also has to do with the tightening of credit as well, making it more difficult for people without means to spend. In my opinion this is a great thing. When people are backed against a wall because they have no other way to pay for their livelihood than their salary, they're not going to be ok with stagnant wages and companies low balling them.

Bring on the pain, I say. Real growth comes from companies investing in their workforce, not people drowning themselves in debt.

Put another way: it used to be that you could buy a house for the equivalent of a year's salary. Now it seems most houses are about 5-6x the average salary of a given area. If that were still the case today, most Bay Area residents should be making near 1 mil/year or houses here should be closer to about $150-200k, more likely the latter since credit is primarily the reason for the inflated cost.

Interesting observation. It's really hard to shake off the shackles of presentism and imagine what the US would look like on an alternative timeline where the US government had not aggressively promoted home ownership and easy credit. The economy and legislation are now so thoroughly distorted in favor of home ownership that it's difficult to imagine how things could have been different.

Specifically, I'm wondering if there was a time when we were having the same debate about housing that we are now having about college tuition, but that it has been long enough (and there have been economic gains for homeowners) that we conveniently forget how much our longstanding policies drive up housing prices. The idea of buying a home on a full year's salary sounds crazy, but then again there was a time when 4 years of college could be paid off fully via part time work while at school, something that is distant pipe dream these days for the majority of jobs within the reach of most college students.

A cost revolution in creating housing is much less likely than MOOCs killing the 3rd tier colleges.

I'd like to be in an alternate universe without the Iraq and Afghanistan wars. Afghanistan is famously The Graveyard of Empires, and I wonder if we are not just staggering around with a mortal wound, with another crash coming to bring us down comprehensively. Nationalizing the ibanks instead of TARP would be a nice alternate universe, too.

I think we are the alternate universe. Bush's win over Gore in 2000 was so ridiculous that a half-assed intervention by time-traveling experimental historians almost seems like a reasonable explanation.

It is interesting, and sad, to think of how much may have ended up hanging on a couple of hundred Florida voters. Of course, it may be wrong to think that a Gore presidency would have been all that different.

I wouldn't say that credit is driving up the costs of Bay Area homes, but the amount of wealthy workers in the area.

And also consider that homes built today have to go through tons of regulatory costs (building codes, politics with permits), there are new technologies installed, AC, internet, upgraded roofing, better foundations, upgraded wiring, possibly an HOA, rec center, etc, paved sidewalks in front of every house. The US Census Bureau has also determined that the average size of a home is 2,480 square feet vs 1,600sqft in 1970. All the progress that we have made with homes today costs.

Sorry, but I vehemently disagree. With my salary and credit history, I can qualify pretty easily for a $6-800k home. That all-of-a-sudden puts me in a market that I wouldn't have dreamed of being part of before the loan was offered, if, instead, I had to pay cash, or pay a substantial portion of the amount of the home in cash (50-75%, for instance).

If this was true across the board (tightened credit), homes simply would not sell at their current prices. Most people, with the expenses of day-to-day living, would have a very difficult time scrounging up $600k for the down payment of a home, if they could do it at all in their lifetime. Meanwhile the stock of unsold homes and anxious homeowners looking to move would grow. Market forces would eventually push these prices down.

This isn't even theory. This literally happened after the crash when banks stopped loaning money. People wanted to buy houses, and why not? Loan rates were insanely low. But a substantial portion of the population found it difficult to extend their credit further, or get first-time credit, and thus house prices tanked around the country.

You're right that the Bay Area is unique. We have a dangerous combination of: The aforementioned credit, many highly paid people, and people who are younger, and perhaps less intelligent with how they evaluate the value of things, using credit as a sledgehammer to get what they want. But even well-payed engineers couldn't afford the houses around here without substantial credit extension.

I know that people will make political hay of this, but there is danger to managing to quarterly statistics. If your economy needs some adjustments to achieve long-run sustainability then it's possible that GDP may fall for a quarter or two and there's nothing wrong with that.

GDP is a great metric for long-term or inter-national comparison. It's terrible as a quarterly national management metric.

Actual TLDR:

Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.

Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election.

http://www.businessinsider.com/why-health-care-spending-in-g...

Weather and botched implementation of the healthcare exchanges probably also played a part in that. But for whatever reason seems the increase in healthcare spending will be delayed for a quarter or two.

Your comment makes no sense. GDP is slightly down compared to 2013. Why are you talking about 2008?

The article implies that the main driver here is reduced consumer spending from a harsh winter.

> Why are you talking about 2008?

I'm talking only about consumer borrowing and spending prior to the crisis in 2008. My understanding is that, five years after the crisis, consumer spending still has not recovered[1], which seems rather unusual for an economic recovery.

PS. I modified the first paragraph in my comment above, so it more clearly conveys what I actually meant to say.

--

[1] For example, see http://www.clevelandfed.org/research/trends/2014/0214/01houc...

Consumer spending is much higher than prior to 2008. The article you link to says the opposite of what you are saying.

> Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis?

Seems like it is not only unsurprising but also a good thing. People learned a lesson about spending recklessly and some economists would claim that's a bad thing. GDP is not the end-all, be-all metric of a healthy economy.

The funny thing is that consumption is actually historically very, very high:

http://www.tradingeconomics.com/united-states/personal-savin...

Savings rate, now: 4%

Pre stock-bubble average: 8%

edit: "Personal Savings in the United States increased to 4 percent in April of 2014 from 3.60 percent in March of 2014. Personal Savings in the United States averaged 6.82 Percent from 1959 until 2014, reaching an all time high of 14.60 Percent in May of 1975 and a record low of 0.80 Percent in April of 2005."

A lower Personal Savings Rate doesn't necessarily mean people are "consuming" more. At least not the sort of consumption (discretionary) that many businesses care about. It simply means that the proportion of income being saved is lower. There are any number of factors that could make that true, including rising costs of living or inflation vis-a-vis stagnant income.

In fact, while personal income has been increasing on a low nominal basis, income growth rate has been slowing.

Yes, PSR accounts for "disposable" income, but that term can be somewhat misleading. Disposable income is simply the net of income minus taxes. It's not necessarily available for discretionary purposes.

I would say that savings rates are quite low right now, and that accordingly, nominal consumption is high. But there's a deeper story there.

http://www.bea.gov/newsreleases/national/pi/pinewsrelease.ht...

I'm having trouble understanding what you're saying here. What's left after saving and spending?

For example, let's say I made 50k in 2008 after taxes and saved 10% (5k), and in 2013 I made 55k, but saved only 5% (2.5k). My PSR went down by 50%. The first conclusion one might make is that I decided to spend more and save less. i.e. I've become more consumptive. However an alternate explanation is that inflation growth has outpaced my income growth, and that I am in fact consuming the same amount (in terms of measurable benefits), but that it costs me more do consume that same amount. So using the example above where my income grew 10%, it is also possible that inflation over the same period increased by 16.67%, outpacing my income growth enough to reduce my savings rate without me making any qualitative increases in my consumption.

Inflation inflates income dollars and cost dollars, because they're both made of dollars.

Are you talking about some kind of consumption that isn't measured in dollars? I'm not talking about the amount of things that people are consuming, I'm talking about the percentage of their income that they are spending on consumption. Whether that buys a can of peas one year and a yacht the next makes very little difference. If during that first year, everybody bought a can of peas, and in the second, everybody bought a yacht, consumption hasn't increased.

In other words, if your savings rate had to lower because you make less money and things are more expensive, your consumption has gone up.

edit: I'm not trying to make a statement about Americans being wild spenders; I'm trying to make a statement about the possibility of a consumption driven recovery. Americans are very close to the limit of the ability that they have to spend more.

Nominal dollar values is but one way to measure consumption.

The original comment I was elaborating on was talking about other factors that can impact PSR without a change in consumption patterns as measured by what goods and services are received not the nominal value spent on them. One important and very real factor is that nominal income growth for most workers has not grown as fast as inflation. On a macro level you're right, but at the individual level it's that mismatch that matters.

I wasn't talking about measuring consumption in dollars but in value received. If I buy a can of peas this year for $1 and a can of peas next year for $1.10 (assuming no factors specific to the peas or can market), then I have consumed the same amount in terms of the benefit I get. You're also right that I've consumed more in terms of nominal dollar values, but nominal dollar values wasn't the measurement stick I was using when I said they consume the same amount.

It's not that there's something left after saving and spending; it's that there are different types of spending. PSR is a useful starting point, but not a complete story, in assessing consumer health and markets.

For instance, it is not incongruous right now to say that a) people are saving proportionately less, and b) people are not buying as much stuff. Obviously they are spending in direct proportion to what they're not saving -- but the categories of their spending matter a great deal.

Tl;dr is I'm not disagreeing with you at all; I'm just expanding.

The main thriving product of the 21st century American economy is Stock of publicly traded US companies. The stock market is largely decoupled from economic reality. As long as the total market cap of all US companies is going up (which was the case in Q1), there is a "recovery". The settlement between this recovery and the real economic decline will only occur around 2040, when US dollar is debased and finally ceases to serve as the world reserve currency. Feel free to downvote.

The decline is seasonally adjusted vs Q4 2013. Since both periods are after the recession, your TL;DR make no sense, and is a misleading interpretation.