Will the American consumer ever give up?

From today's Stephen Roach commentary (bearish as usual): (emp add)

• The reason to worry, in my view, is that the cost of this cyclical resilience in the face of an energy shock is not without serious consequences for an unbalanced world. In particular, it has pushed the asset-dependent American consumer to a new state of excess. At first blush, there seems to be little reason to worry -- according to our US team, personal consumption growth is tracking a 5.5% gain in the current quarter. But consider the costs of that stellar accomplishment -- a personal saving rate that has finally hit the “zero” threshold, debt ratios that continue to move into the stratosphere, and asset-led underpinnings of residential property markets that are now firmly in bubble territory.
  
  
• there can be no mistaking the precarious position of today’s US consumer. In the face of an unprecedented shortfall of labor income -- with real compensation growth in the 44 months of the current expansion running $282 billion below the path of the typical cycle -- consumers have not even flinched.
  
  
• Reflecting a new asset-dependent spending mindset -- first arising out of the equity bubble of the late 1990s and more recently supported by the property bubble -- US households have been more than willing to draw their income-based saving rates down into unprecedented territory.
  
  
• The only backstop available to support the spending excesses of American consumers is the saving that is now embedded in their over-valued homes. Yet with the housing bubble now in the danger zone, that’s not exactly a comfort zone.
  
  
• The combined share of consumer durables and residential construction has averaged 14.3% of GDP over the past year -- virtually identical to peak shares hit just before the two energy-shock-induced consumption collapses of the 1970s.
  
  
• a persistence of spending excesses by the income-short US consumer also underscore the potential pyrotechnics of a major current account adjustment
  
  
• At the current level of oil prices, I suspect one of two things will happen -- either the over-extended American consumer will finally cave or the long-awaited US current account adjustment will finally unfold.
  
  
• All this points to what could be the biggest macro call that any of us will have to make for a long time -- the capitulation of the unflinching American consumer.
  
  
• Over the years, I’ve learned to be wary of betting against the American consumer. But the history of energy shocks argues to the contrary. Moreover, today’s saving-short, asset-dependent, overly-indebted consumer is far more vulnerable than in the past. After years of such warnings, investors, of course, have all but given up on that possibility. That’s precisely the time to worry the most.

posted by Quiddity at 8/15/2005 08:59:00 AM