Household balance sheets are in good shape

 - by New Deal democrat

 One of my fundamentals-based systems for monitoring the economy is to look at the health of household balance sheets.

Most recessions happen when consumers are under stress. If real wages are growing, if assets that can be leveraged or cashed in (mortgage payments, home equity, stocks) are increasing in value, if monthly debt payments are not increasing, then there is no reason for consumers to pull back, and economic expansions continue. It is only when all of these conduits for spending are constricted that recessions typically occur.

And at present, households are generally in good shape. None of the avenues of spending power have been constricted.

To begin with, real hourly and weekly wages have been increasing steadily since their June 2022 lows:

Values in the above graphs are normed to 100 as of January 1973, the previous all time high for both series. There is also some immediate post-pandemic distortion due to the fact that the 2020 layoffs were heavily tilted towards lower income laborers. Thus the averages increased. Even so, real average hourly wages are presently at all time highs except for several months in spring 2020, while real weekly wages are at 2.5 year highs, and above all pre-pandemic levels except for 1973.

In terms of assets that can be cashed in or borrowed against, I’ll spare you the graphs, but suffice it to say that both real, inflation adjusted home prices, and stock prices, are at all time highs - the latter having made another such all-time high only yesterday.

Finally, here is the long-term historical look at mortgage, non-mortgage (left scale), and total (red, right scale) debt services payments of households as a percent of disposable income:

While these have risen through Q2 of this year, the last data available, along with the Fed’s interest rate hikes, they are at pre-pandemic average levels.

Here is a close-up of the last five years:

What is noteworthy in this zoomed in look is that total debt service payments as a percent of income stabilized once the Fed was done hiking rates. If a recession were in the offing, I would expect this ratio to be continuing to increase. What this tells me is that average households’ debt service payments are well in line, despite being higher than their immediate post-pandemic historic lows.

In summary, real household wages and asset values are in good shape. The Fed rate hikes did not overly stress their balance sheets. There is no evidence households have been reining in spending. There is every reason to believe that the economic expansion will continue in the next few months.

For Indigenous Persons Day: a review of “A Brave and Cunning Prince” by James Horn

 

 - by New Deal democrat

Recently I read the above entitled book, and found it fascinating. Below are excerpts from an online book review, to which I have added further detail in brackets. I highly recommend it:

“In the mid-sixteenth century, Spanish explorers in the Chesapeake Bay kidnapped an Indian child [whose name they wrote as ‘Paquiquineo’] and took him back to Spain and subsequently to Mexico. [He may not have been kidnapped at all. There is evidence that many of the Indians who went to Europe did so of their own free will, especially younger warriors who were up for a Big Adventure.]  The boy converted to Catholicism and after nearly a decade was able to return to his land with a group of Jesuits to establish a mission.’ [During that time, he was treated as a  prince, I.e., visiting nobility, in Spain, even having an audience with Emperor Charles V. In fact, Indian nobility was treated similarly in Spain. There are descendants of Montezuma who married Conquistadors, settled with them in Spain, where the mansions and estates survive to this day. When he was taken to Mexico for several years on his way home, he got to know some of the Aztecs and other tribes, and both learned and saw how the Spanish treated them as virtual slaves. 

Based at least in part on that experience,] “Shortly after arriving, he organized a war party that killed the Spaniards.”[one Spaniard - a young servant/altar boy - was spared, despite his desire to be martyred rather than live among the heathens. When the next Spanish vessel arrived, he escaped and told the Spanish what happened. In an ensuing battle, many Indians were killed, and about 30 warriors were hung from the ship’s yardarms. But Paquiquineo’s plan succeeded in stopping any further Spanish exploration of the Chesapeake.]

“In the years that followed, Opechancanough (as the English called him), helped establish the most powerful chiefdom in the mid-Atlantic region, [including possibly killing some of the survivors of Raleigh’s ‘lost colony’. About 4 decades after the Spanish,] When English settlers founded Virginia in 1607, he fought tirelessly to drive them away, leading to a series of wars … and came close to destroying the colony. [His strategy was the same, engaging in a ‘long con’ designed to lull the settlers into complacency, even admitting Indian visitors into their dwellings often with no concern, after which his warriors suddenly and all at once fell upon the settlers at multiple locations, killing at least 1/3rd of them.]

[In an echo of what happened with the Spanish, his plans were thwarted by an Indian boy named Chanco, who had been sent to live at a settler’s farm in order to learn their language and customs. When a warrior told him of the planned massacre, Chanco warned his English friends instead. They in turn warned the Jamestown settlement in time to defend itself. Chanco was rewarded with 100 acres of land, which to this day is known as “Chanco’s Hundred” on the outskirts of Williamsburg.]

[As an aside, an English boy named Thomas Savage was sent to live with Powhatan’s tribe. He was well treated, but ultimately fled when he feared a massacre was impending. Powhatan was emotionally wounded, telling Savage he had nothing to be afraid of. Ultimately Savage was given a large tract of land by a friendly Chief on the eastern shore of the Chesapeake. The farm stayed in the family for 200 years, and even now is known as Savage’s neck.]

“He [Opechancanough] survived to be nearly a hundred years old and died as he lived, fighting the invaders [he was captured and imprisoned, and one of the guards shot him to death. He is buried near Chief Powhatan in a mound in a small reservation on the Pawmunkey River in Virginia.]”

Opechancanough‘s story raises some interesting questions for today’s Israel vs. Palestine conflict. What are the just limits of even violent resistance to displacement of an indigenous group by settlers?

 A Brave and Cunning Prince