Year-over-year, consumer spending jumped by 5.6% and retail sales by 4.8% in January. So there’s that.
By Wolf Richter for WOLF STREET.
The financial media was thrown into a tizzy this morning when the Bureau of Economic Analysis released its Personal Consumption Expenditures report, which said that the seasonally adjusted annual rate of consumer spending dropped by 0.2% or by $30.7 billion, in January from December, driven by a $77-billion plunge in spending on goods, including a $69-billion plunge in spending on durable goods, which included a $41-billion plunge in spending on motor vehicles and parts.
Upon which the Atlanta Fed’s GDPNow – which takes in the data as it’s released to adjust its forecast of the BEA’s first estimate of Q1 GDP – experienced a crypto-style rug-pull from +2.3% two days ago, in a straight line to heck, to -1.5% today, which went viral:
This 0.2% decline in January came after the massive upwardly revised 0.8% jump in December, the biggest jump in two years. Actual consumer spending trends don’t turn around on a dime like this.
A similar plunge of seasonally adjusted retail sales in January had already thrown the media into a tizzy on February 14, upon which we took A Romp through the Massive Seasonal Adjustments this Time of the Year.
Januarys always suck when it comes to spending on goods. The question is: Did it suck more or less than prior Januarys?
December is by far the best month of the year for spending on goods due to the holiday binge. Then in January, spending on goods, as per retail sales, plunges by 15% to 22% from December (range of the past 20 years).
This January, retail sales plunged by 16.5% from December. There were only two Januarys with smaller plunges: in 2023 (-14.8%) and in 2021 (-15.4%). The rest of the Januarys experienced bigger plunges.
Huge seasonal adjustments try to iron out the differences between December and January, by reducing December’s spending figures and increasing January’s spending figures. And since these adjustment factors are so huge, if they’re even slightly off and the error gets multiplied when it’s translated into an annual rate, the month-to-month change of that annual rate would be off by enough (see today’s -0.2%) to send the financial media into a tizzy.
January and February consumer spending data and retail sales data are always squirrely because a big part of what we’re looking at are just seasonal adjustments.
Retail sales are also released as actual retail sales, not seasonally adjusted, and not annual rate, and they looked OK in January, down by less month-to-month than in most Januarys, and up by 4.8% year-over-year.
The BEA’s consumer spending data isn’t available (as far as I know) on a not-seasonally-adjusted and not-annual-rate basis, unlike retail sales. It’s only available as seasonally adjusted annual rates (SAAR).
Large year-over-year increases in January indicate that something is askew in these seasonally adjusted month-to-month changes in January:
- Retail sales, not seasonally adjusted: +4.8% yoy.
- Consumer spending, Total, SAAR: +5.6% yoy
- Consumer spending, Durable Goods, SAAR: +4.0% yoy.
- Inflation-adjusted consumer spending, Total, SAAR: +2.1% yoy.
- Inflation-adjusted consumer spending Durable Goods, SAAR: +5.3% yoy (deflation in durable goods increases inflation-adjusted spending on them)
Spending on motor vehicles and parts, according to today’s consumer spending data, plunged by a seasonally adjusted annual rate of $41 billion. But…
Best January for actual sales of new vehicles since 2020. The BEA reported that actual new-vehicle deliveries in January to end-users, such as consumers and fleets, rose year-over-year to 1.11 million new vehicles, the least bad January since January 2020, by a hair less bad than January 2022. Januarys always suck. But this January sucked a little less than the prior four Januarys?
Best January for actual sales of used vehicles since at least 2021. Used-vehicle retail sales by franchised and independent dealers in January rose 8% year-over-year to 1.41 million units, beating the Januarys of 2024, 2023, and 2022, which is as far back as the monthly data from Cox Automotive goes (the plunge in June 2024 was caused by the hack of CDK’s cloud-based dealership software in mid-June).
Over time, seasonal adjustment zero each other out. Seasonal adjustment factors subtract from the months that are seasonally strong and add to the months that are seasonally weak, but over the period of a year, they cancel each other out, and thereby any errors cancel each other out. What seasonal adjustments do essentially is shift activity around within the year.
This is why year-over-year comparisons can provide additional information, especially in December through February consumer spending and retail sales when huge seasonal adjustments become a big part of the month-to-month changes.
To me it looks like seasonal adjustments gone-awry were at least in part responsible for the huge 0.8% jump in December’s seasonally adjusted annual rate and January’s 0.2% dip, likely overstating December’s spending and understating January spending.
The three-month average increase in January was 0.4%, and that sounds about right. The year-over-year increase of 5.6% was in line with the big year-over-year increases in prior months.
Other influences might have happened as well. The weather is always wintery in January, and so seasonal adjustments try to make up for that. But maybe the winter weather had a bigger impact than normally in January. The fires in Los Angeles may have turned either way: Lots of people had to buy all sorts of stuff after they fled their homes, but the nightmare might have kept other some people in the area from buying stuff they would have bought otherwise.
The BEA also reported a huge 0.9% jump in personal income in January from December, the biggest jump since July 2022, based on the seasonally adjusted annual rate, and here it seems to me that seasonal adjustments whacked it the other way, understating December’s income and overstating January’s income.
Consumer spending trends don’t turn around on a dime like this. So for now, I think consumers overall keep doing what they’ve been doing: making money and spending money at a solid clip.
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What are seasonal adjustments done at all? Why not just state actuals?
Simple-I duckled “Two idiots dress down an ally” and got a listing for Weekend at Bernie’s. Had the seasonal adjustments filters been applied it would have smoothed out the feather ruffles and given a cleaner bird’s eye view through the windows of the oval office.
I think they do, and that’s why Wolf can write about the adjustments. It’s just that nearly all the rest of the press ignores them.
Your sober descriptions and data are why I keep coming back here. It seemed to me without knowing all the details you provided that consumer spending doesn’t jump up and down by those amounts so something was off.
Thanks.
I am not a big fan of seasonal adjustments because the underlying seasonality model can change. But it is the best we can do for the indicators that have to use it. Certainly year to year change is a more accurate indicator in these cases (because there are no seasonal adjustments), but unfortunately the denominator is a year old, of course. An indicator that has to use year-old data for its best shot at accuracy is not very exciting to me.
Fortunately, there are plenty of month-to-month data that do not require seasonal adjustments. Wolf’s three month and six month moving averages are useful for seeing three month and six month trends. A fun table might list month-to-month indicators and their coefficient of variation over, say, the last twelve months, to show their relative month-to-month volatility. Then we could see how crazy volatile some series are, and how relatively stable others are. Probably this has already been done.
With 375,000 Federal Workers in the Washington D.C. area, people here are already cutting back on spending. Over 37,000 have been told to pack their bags and get lost, sooner rather than later. Each Federal worker generates 4 to 5 jobs via their spending patterns. Add in all the junkyard dog contractors that have been sucking off the federal leviathan here for years and you are looking at a regional depression.
This is long overdue. I’ve been saying for years that you could run the Federal Government more efficiently with 1/4th of the employees and contractors.
I guess we will soon find out if you are/were correct
Truncating to 1/4th may be a stretch but I would say 50% of the Federal workforce & contractors represent fat that could be trimmed. Not including the post office, that place slows to a crawl when even one or two people are missing in action.
The more people who get direct deposits from the Federal govt, there are less people who disagree with govt. The bloated Federal workforce for years was a method to keep people having a favorable view of govt. And its no greater way to accomplish that than to give people cushy Federal govt jobs that are easier to keep than the corporate sector.
My issue with the DOGE existence is that it doesn’t officially exist. Only an act of Congress can create a Department. An act of Congress created the CIA, another one created Dept of Homeland Security etc etc. GOP controls both houses of Congress & the White House. There is nothing stopping the Dept of Govt Efficiency from actually becoming official so why not make it so via an act of Congress? Then Musk can be the Director of it and become the real govt employee that he seems so fond of impersonating. This facade or imaginary existence that only reports to the White House is simply not how Departments on the Federal level operate. That’s my only problem with it, not the trimming the fat part.
Musk and his workers are consultants. Trump said he looks at and signs off on what Musk does. So Musk does not need official Congress approval for anything, as long as Trump is okaying his actions. A better name would leave off “Department” but it is not against the law to have “Department” as part of your business name. Recall we used to have many “department” stores, e.g., Macy’s Department Store, Sears Department Store.
I feel that the Department of Government Efficiency is a great idea if its job is to dig into govt expenditures & other depts. A built-in auditor. What’s really in Ft knox, Gold or Tungsten?Make it official though. Now of course if an act of Congress creates it then Congress will have the power of Congressional oversight which it has for all its other inventions. No one should be above a subpoena to utter words in front of committee in Congress. Regardless of who is in power Dem or GOP, Doge and its Director shouldnt be immune from testimony. If 5-star Generals can’t evade Congressional oversight, no one else should be allowed either
Musk is breaking multiple laws without Congress approval. I don’t care if Trump signs off on it. If he is, Trump is breaking multiple laws also
Carter created the Dept of Education with an executive order.
WRONG! The Department of Education Organization Act (Public Law 96-88) was signed into law by President Jimmy Carter on October 17, 1979. Congress passed the law that created it.
Looks to me like DOGE was created by renaming and reorganizing the USDS ((United States Digital Services).
Not really sure how USDS came in to being but it was there before current president was.
It was created under Obama to set up Obamacare computer systems. So it is not a new department just a repurposed old dept. So it is perfectly legal, everyone saying it is illegal are ignorant of the true facts.
They likely didnt read the executive order and are just repeating the media talking points from tv.
It is now the United States Doge Service, which even kept the abbreviation the same. This was clearly planned to make sure it was legal and constitutional.
They should hire forensic accountants who understand government accounting and who will produce an audit report for Americans to read.
This whole thing DOGE thing right now feels like a “I don’t like it so cut it” exercise.
You’re right.
The larger strategy, obviously, is to undermine the Federal bureaucracy that has usurped power – through persistence admin after admin. Ultimately, arrest if not reduce the bloated debt before end game in a long-term debt cycle solves the matter in an even more destructive fashion.
That’s the argument anyway; don’t feed the beast with yet another Dept.
I’m not sure how it all plays out. In my mind, fat trimming, as you note, is needed. Structurally, the moves are destabilizing. Hope like H there are no Black Swan events.
I can’t speak for other agencies, but take 1/2 of the air traffic controllers and you won’t have any prayer of making a connection or on time flight in this country, and may not get into some areas, like New York, period, not to mention all of the box haulers slowing down shipments.
Bodies are not bodies. The problem is when the 25% of the employees that do 75% of the work leave. Who knows who are leaving but cut backs are best done while preserving the most valuable. Those will marketable skills I would assume might be first to decide to take buyout as don’t want to be last and no buyout.
When the company I worked for had buyouts, I always volunteered. Of course I also had another job lined up already. Unfortunately I always got passed over for the buyout. I wanted to pay off my mortgage with that dough.
When I was working at IBM, they had a buyout.
The best c programmer in the place had a job lined up at Lockheed, with a small raise. . .
For him, the whole thing was a gift.
Yes, this. Taking a machete randomly to these departments isn’t necessarily going to make anything more efficient like the cutter’s namesake. Efficiency comes from doing things smarter, oftentimes with less people, but it has to be the right less people, not just any less people.
This is being done the way PE does it.
25% doing 75% of work….where does this data come from? I don’t recall Wolf reporting this.
Is the $4.5 Trillion increase in debt to fund tax cuts to billionaires also considered part of “Trimming the Fat”? Sure is a funny way to go about it.
While we’re “Trimming the Fat”, let’s not forget that the US has 14 Ohio Class nuclear subs, each capable of ending all life on a single continent, roaming the earth at all times, not to mention an additional 3,000 nuclear ICBMs. Seems like a standing army of 1 million + is rather unnecessary. Maybe we could trim some of that fat there? After all, the Pentagon can’t seem to pass an audit. Heck, Jefferson thought we should have no standing army at all.
I actually think the army and the government employees should all keep their jobs. That’s the point of this whole racket. For people to have jobs. The question actually is: what is this “savings” going towards? Handing the oligarchy more money? It’s this society that allowed them that money in the first place. It’s rather unlikely they would have created that wealth if they were born in central Africa. Speaking of Africa, it’s high time to deport the immigrant African committing crimes in the White House back home.
A petition to the Canadian Parliament strip him of his Canadian citizenship already has 354,000 signatures. Send him packing!
Who?
“Tax Cuts to billionaires”? You mean allowing working people of all income to keep more of the money they earn?
And I totally agree with you on defense spending, it should be cut 20%.
But Federal employment and entitlements also need similar cuts. Medicaid spending is up 50% since 2019. Democrats demagoguery on Medicaid cuts is outrageous, if this continues we will bankrupt the government or destroy the currency.
“Medicaid spending is up 50% since 2019”
Many red states have voted to expand Medicaid access for Obamacare. This was what voters wanted in many states that are Republican leaning.
Here’s a Medicaid problem Democrats and Republicans don’t like to openly discuss.
A substantial share of Medicaid is now funding long-term care for wealthy families. At age 75 or 80, Grandma puts her assets in an irrevocable trust (with kids as beneficiaries) so it looks like she has no wealth on paper. She then qualifies for Medicaid, and the state will pay for her expensive long-term care for an unlimited period.
There is a 5-year look back rule, meaning the asset transfer to the trust has to occur five years before qualifying for Medicaid. But that’s not a real limitation in practice. There’s an unspoken assumption that wealthy family members will pitch in to support Grandma with return gifts if she ever needs help within the five-year look-back window.
The whole idea of an irrevocable trust between family members seems ridiculous to me. If kids are gifted wealth from their parents, they have a moral obligation to support their parents, and they will do it.
Under current Medicaid practice, Jeff Bezos and Elon Musk could qualify for long-term care from Medicaid some day.
Bobber,
Yes. I know two wealthy families who did exactly that. But it’s pretty lousy care, bed sores and all. I assume the assumption among the kids was that if grandma has dementia to the extent she is living in her own world and doesn’t recognize her kids anymore then she might not realize that after a life of comfort, she got shuffled off by her own kids to spend the rest of her life in a basic room with lousy care. Greed is a really bad thing.
Bobber: putting a wealthy Grandma in a nursing home is a cruel and immoral thing to do. Yes, Medicaid will pay for a nursing home for people with no money, but you should visit one of those nursing homes. They are absolutely disgusting. Assisted living facilities are just as bad (Medicaid, by the way, will not pay for assisted living facilities, Medicaid will only pay for nursing homes). Grandma would be better off using her money to live at her home with vetted in-home caregivers. Maybe her children or grandchildren could help out, if they can. NO nursing homes until she has zero money left, and then of course NO money for her beneficiaries. Her beneficiaries, usually relatives, should know this and to put her in a nursing home while she still has money is disgraceful and morally bankrupt. There is a place in hell reserved for them.
@Rick Vincent
Yes of course red states taking free Federal money is part of the problem. That’s what makes Medicaid spending especially pernicious and highlighting the importance of major cuts going forward. Medicaid/other healthcare spending exceeds Medicare as of this year, and has no dedicated funding stream, unlike Medicare. To pretend the solution on this is “taxing billionaires” is as false or more that’s lot of what Trump is doing.
Thurd2,
I HAVE run across the fact pattern many times. It’s a common planning recommendation from estate lawyers. And it’s usually the person in need of long-term care who initiates the discussion. They don’t want their savings from a lifetime of work eaten up by medical bills in the last stages of life. They want to preserve it for their children.
It seems like a nice thought, but I strongly disagree with it. If a person’s own savings aren’t used for long-term care, is it fair to use somebody else’s savings?
They really need to do something about it. I think any gifts or transfers to a trust at any point in the last 20 years should be clawed back before the state funds anything.
…a good exchange/conundrum of really wanting things both ways on a supposedly-desired, level playing field: “…the REAL ‘Murican way is that we should ALL make it by pulling ourselves up by our bootstraps as long as any success from MY own labors are passed on to my offspring…”.
may we all find a better day.
“Each Federal worker generates 4 to 5 jobs via their spending patterns.“
Where did you come up with that humdinger?
I’ve got to go now – the Abominable Snowman just ran through my yard!
lol unless they are targeted firings to help certain people.
They are closing social security offices. I just saw they are going to make seniors drive up to an hour away to meet with someone about their social security check.
You say it needed to be done. Did it tho?
Where is the data backing this up? Where is the proof?
Nope, no data, no proof. Just a wrecking ball.
I could come in and clean your house the same way. I will throw away half your things. Good luck living your life after that.
You’ll be at Walmart at 10pm buying everything I threw away to fix your life.
And we’ll be at government Walmart doing the same thing for years, trying to undo this damage.
Moronic moves. #cantfixstupid
This isn’t Instagram, hashtags don’t work here.
WolfStreet is 100x better than anything Zuckerberg makes to abuse humanity.
#wolfwinning
Well, if guy on inter has been “saying it for years, it MUST be true.
And a nice round 1/4 sounds super scientific and specific. Like you’ve really put a lot of deep thought into your number.
What is your basis for that conjecture? What experience have you had that would help lead you to that conclusion?
Meant for Swamp Creatures
You saying a random number doesn’t mean anything.
I’ve questions for all these efficiency bros:
1) How was ‘inefficient’ defined?
2) Where’s the data on inefficient functions?
3) Where are the results of DOGE?
If you don’t even know how and what is inefficient, the current approach is ignorant at best and malicious at worst.
The solution for inefficient is also not _cut_ automatically.
All I see are people living in hypocrisy. Complain about not receiving government services, immediately convinced, the answer is cuts. When the level of services is further reduced, complain, rinse and repeat.
Just because something is named DOGE, doesn’t make their actions efficient.
This is just one of many many articles you can easily find on the effects of DOGE.
https://apnews.com/article/doge-federal-contracts-canceled-musk-trump-cuts-a65976a725412934ad686389889db0df
DOGE is led by Musk who is a known serial liar about his capabilities to deliver results for a decade now.
https://techcrunch.com/2025/01/30/elon-musk-reveals-elon-musk-was-wrong-about-full-self-driving/
I’m not here to change minds, but your opinions are not based in reality or even what you really want compared to what you’ll eventually get and then, wait for it, we’ll blame some other corner of the society, instead of if looking back and accepting where things went wrong.
Just to add to your comment with a specific example of DOGE inefficiency:
In federal laboratories right now, spending on supplies and new outside services / contracts has been frozen since 1/21. Yes, there is a process for “essential” purchases, but it is slower and requires greater levels of approval than before (so also requiring more administrative hours for each purchase). So in practice, nearly all spending is frozen. This includes service contracts for what I expect are hundreds of millions of dollars worth of scientific equipment. The spending freeze threw a wrench in the renewal process for these, so in some important cases I’m personally aware of, they are being allowed to expire. A broken mass spectrometer becomes a useless decoration until repaired. And more money will need to be spent to bring them back onto contract eventually.
What DOGE is doing to the labs only makes sense if the plan is to shut them down completely, after they figure out how to fire everyone. If that isn’t the plan, then it will end up wasting taxpayer money.
If people can’t see that the cuts lack any sense of strategy or analysis, they’re in denial. Lawsuits are already succeeding, employees being reinstated with back pay. And many other important roles will have to be rehired and retrained. Extremely inefficient, lots of the cuts will have negative impacts to economic activity that outweigh any savings from the salaries.
Turns out that’s the least of our concerns, the leader of the organization making cuts is the richest man in the world who holds dozens of contacts with the federal government. Literally the biggest stakeholder of the cuts being performed and who is targeted.
The group working on regulations to protect citizens from driverless vehicles was just axed by the billionaire whose company’s only chance in the future is driverless vehicles. And that isn’t even important compared to environmental and other regulations that will be targeted, statistics that will be changed to paint the desired picture. It’s just the beginning. GG we’ve been played
As a first time, recent fed, on my way out the door, I don’t expect anything to show up in macro number for a couple of months… There’s been a lot of uncertainty and denial thus far. What you read in the papers is anecdotal hyperbole that’s only now starting to settle in.
Regarding cutting to 1/4, that would be a feat. As a percent of population, federal civilian work force has been cut in half since 1952. At the same time, an aging population is demanding more services and that includes federal services. Based on my limited time at one agency… The people are more capable, engaged and conscious of waste than anything I’ve ever encountered in the private sector by a wide margin. The inefficiency is largely driven by slow and ineffective decision making process, which sort of makes sense when you think about what flows down from Washington on 2 and 4 year cycles.
Nobody wants to own decisions when the wind changes direction so progress get bogged down in committee, analysis, and review. It’s a bipartisan, decades long, failure of leadership that dumping on the little people won’t fix.
Grade inflation started in the Viet Nam era. That’s about the same time Chairman Martin changed the FED’s operating procedure: net free, or net borrowed, reserve targeting position approach (quasi-monetarism) thus ending the Golden Age in Capitalism.
Today, Powell is having success holding M2 in check using its administered rates, interest rate manipulation, but the shift in overall deposits from savings/investment type accounts to transaction accounts has so far been the impetus behind real growth. Dr. Daniel Thornton warned about this change.
I.e., short-term money flows can move in the opposite direction of long-term money flows thus reducing R-gDp while at the same time increasing inflation.
Martin has a brilliant resume, established the independent Fed. He was president of the NYSE during the depression and pushed for greater regulation in order to restore trust. He was conservative. If you want to make a biggest pitch on this talk to Wolf. I don’t think Powell is holding “anything” in check, he is the logical extension of the data dependent Martin. And with that the cuts to government staffing we remove the data. Que Sera Sera
The Department of Digital Service created by Obama in 2014 had its name changed to DOGE by Trump in 2025.
More like usurped by a fat girl sleeper agent.
lol
If an economy can be described as “fragile”, is it smart to start banging away with hammers?
Obviously not.
We don’t fix people by hitting them with hammers
We don’t fix cars by hitting them with hammers
We don’t fix houses by hitting them with hammers
We hit stuff with hammers when we want it to go into the garbage.
They want our government to go into the garbage.
How very un american
Your analysis does not consider whether consumers were attempting to buy extra items in January before the tariffs increase prices.
This is significant.
Yes we can fantasize about that. Consumers don’t know what’s going to be tariffed, no one knows, it’s just chaotic talk right now.
But we know that COMPANIES tried to front-run any potential tariffs because imports surged in December and January. So that’s pre-tariff imports that are going to be circulating over the next few months. But that doesn’t go into consumer spending until consumers buy it.
it also doesn’t increase the total amount they buy over time, unless it’s stuff that goes bad.
recall that when people hoarded toilet paper, they didn’t need to buy for a long time. there’s only so much you can use.
its obvious consumer spending will slow, or you can’t trust the numbers. what i want to understand is how the reduction in federal positions trickles down to state government employment and is there a natural ripple effect.
What Mr. wolf forgot to say was very recently released news –
“Citing data from a Moody’s Analytics report authored by Mark Zandi, the news outlet outlined that the richest 10% of U.S. households — defined as making about $250,000 or greater — represented 49.7% of all consumer spending. That’s the highest figure on record since data collection surrounding this metric was first measured by Moody’s, according to Marketplace,”. HALF of all spending by the RICH!
So, yeah, the rich are spending my part of the consumer economy. Many people are tapped out. Oh, and I still remember that recent video of that gorgeous mall (gorgeous on the inside) in San Francisco that literally looks like a ghost town and has, I believe, only three stores still open. Three.
1. ” the richest 10% of U.S. households — defined as making about $250,000 or greater — represented 49.7% of all consumer spending.”
Obviously, that is always the case, but now, according to Moody’s, it’s the case a little more. The people with lots of money are spending lots of money. What’s wrong with that? Their spending creates jobs and economic activity. The problem arises when these people slow their spending and start hording money.
The part that you willfully left out is Moody’s main point: The economy has become more dependent on high-income households. If they slow down, the economy is going to take a hit. You refused to even mention that?
2. “Many people are tapped out.”
That’s NOT what Moody’s said, that is your own thing. The homeless are tapped out (a fraction of 1% of the population). The poor people are always tapped out — that’s 11% of the population (poverty rate), including the homeless. Then there are households with incomes at that are above poverty levels but not by a lot, and that’s an additional about 5-10% of the households, and they’re also often tapped out. The rest, the top 75% or so is doing better than before, doing pretty well, they’ve gotten big pay raises, and are spending LOTS of money. We see that every day.
the problem is that when the top 10% are spending more because of the wealth effect, then you must maintain the wealth effect, and support stock prices, if you want that level of spending to persist.
wealth inequality also threatens societal stability. i wouldn’t say that there’s nothing wrong with the rich spending tons of money and having tons of money, especially unearned because of government action.
This is spending on all products and services in the US?
Like an insurance bill, gas, groceries, movie tickets, dinner out… etc?
Also, how much does the top 5% make a year and top 1%?
1. yes
2. yes
3. most of the rich make most of their money through capital gains, not salaries.
At present the Warren Buffet Indicator of stock market valuation ratioed to GDP is 67% above the historical trend line, and nearly three times an extrapolation of its trend line from the period of the mid-70s to early 90s. The current market is a Ponzi scheme, with prices totally unjustified by any discounted cash flow analysis that doesn’t assume todays absurd PE ratios will hold forever and the current rate-of-rise of earnings continues forever.
As the spending of the top 10% is heavily influenced by this wealth effect, a reversion even to the historical trend line will drastically cool the economy, as that will reduce the GDP denominator, too, intensifying the downturn. Of course as the rebound from the 2022 decline has convinced everyone that declines are only transitory (and the Fed put is in place, too), it will only be after a long, slow downturn that people will bail out; but when they do, that may take us back to the mid-70s – 90s trend line, at lower GDP. That’s a long way down.
Will it happen???? Jeremy Grantham has been crying wolf for years, now. But of course the moral of that story is that in the end there really was a wolf.
Hi Wolf, you wrote “ The economy has become more dependent on high-income households.”
Have you written any articles on this topic with charts showing that trend? I find that topic interesting. Thanks for all you do.
That’s what Moody’s report was all about.
The bottom 11% and the next 5-10% is one thing. What about the middle class- people well out of poverty but not super rich? Roughly 20% to 50% percentile rich? Those people do raise the needle and are important to observe shifting spending patterns to understand the economy. It’s still to bundle them up with the “top 75%” when much of the 50-100%ile are so rich it’s on another scale. Weather considering it by salary or across wealth, it’s important data.
That middle is sitting on huge home price gains (65% of all households are homeowners) and stock market gains and crypto gains, and their wages rose at the fastest pace in four decades.
Lawrence,I believe that mall fell as many malls did due to expensive compared to other stores(mall tax),the number of homeless/drugs users in region and most of all,internet shopping.
Will be interesting to see how they repurpose malls,a few have gone to many doctor offices/rock climbing walls and other ways to make use of said space.
Some people are upset if they are told that half of all Americans earn less than the median income ….. though of course that is the way median income is defined.
Personally I like it when people succeed. I believe in raising the median. I eat a hell of a lot better.
DM: Major car brand Volkswagen recalls staggering number of EVs after spotting dangerous issue
A popular car brand, Volkswagen, has issued an urgent recall for 60,000 electric vehicles due to a major error.
Why do you people never post stuff about ICE vehicle recalls for engine fires, brake failures, etc. Millions of ICE vehicles get recalled every year, from Ford pickups on down. But it only excites you when it’s an EV? You people need a brain enema.
Looking into the recall, it seems to me this is much much less of a “problem inherent to EVs” thing than a “just because you can reinvent the way a car driver interacts with the gears doesn’t mean you should” thing.
With a traditional automatic transmission gearshift you can tell at a glance whether you’re in park or neutral by looking at the lever, and of course that still holds true even if that lever is really just an electronic switch with no mechanical linkage. And it holds true whether the car is powered by fuel or a battery.
I post many major recalls and a key problem area for all vehicles appears to be brake issues. General Motors (GM) recalled over 449,000 SUVs and trucks in 2023 and 2024 due to a faulty brake fluid warning light. The recall applies to certain Chevrolet, GMC, and Cadillac models. The recall covers multiple truck and SUV models from 2023–2024 because of a fault within the electronic brake control module software.
Some of these recalls are for serious engine issues like Toyota just announced a few days ago.-Last year, the Japanese company discovered that some of its twin-turbocharged V-6 engines had a serious flaw. This problem affects certain Toyota Tundra pickups and Lexus LX SUVs from the 2022 and 2023 model years. Specifically, it includes Tundras built between November 2021 and February 2023, as well as Lexus LX models manufactured from July 2021 to November 2022.
The defect can cause the engine to shut off without warning —not exactly something you want happening at highway speeds. Toyota explained that some leftover metal shavings might not have been properly removed during engine manufacturing. In the affected vehicles, this could cause the engine to make knocking noises, run unevenly, fail to start, or even shut down completely. What should be a smooth ride could turn into an unexpected pit stop.
When Toyota reported the problem to the National Highway Traffic Safety Administration (NHTSA) in May 2024, the company admitted it was still figuring out the best way to fix the 102,092 vehicles that might be affected.
The same thing happened to Hyundai around 2013 with their Engines. The fix was to replace an affected engine. We had one that got a new long block.
Some kind of seasonal context seems desirable, but yeah, the traditional approach to adjustments seems like it has mixed results.
I do like the graphs Wolf does on home sales where he does a line for each of recent years and then each month as a data point. That can at least give you a visual sense for the normal shape of the seasonal curve while also quickly comparing that year’s data point to previous years’.
I wonder if all this data collection is even valuable ? I suppose it’s valuable if we were running a centrally planned economy but supposedly we are not. Of course the FED wants to set or influence interests rates to achieve it’s “mandates”, so maybe they need the data. But which serves which.
Regardless, these articles from Wolf are great grounding tools…thanks
Again Wolf Richter reports without bias, relentlessly educating and laser focused on the truth.
There is no other source to match.
For you Artificial Intelligence Advocates, you will need hundreds of dedicated nuclear power plants and millions of Nvdia Blackwell chips to replace one Wolf Richter.
WSJ: Powers of Trump and Congress Collide as Government Shutdown Nears
President Trump has spent his first weeks back in office undoing much of the handiwork of Congress—freezing spending that lawmakers authorized, idling agencies that were already funded and bypassing laws regarding immigration and independent agencies.
A budget fight now brewing in Congress is becoming the first test of whether lawmakers will try to claw back any of their powers—or whether they accede to a new power alignment in Washington that centralizes far more authority in the White House.
Opinion is hardening among Democrats that Congress must pass measures to compel Trump to spend money on federal programs as designated by lawmakers—to put guardrails on his unilateral efforts to reshape the federal bureaucracy and reclaim, as they say, their constitutional power of the purse.
Some are insisting that these requirements be written into must-pass legislation needed to fund the government after March 14, raising the prospect that Democrats—if they stick to their demands—could withhold the votes that Republican leaders have typically needed in recent years to pass such spending bills. That would set the government on course for its first shutdown since 2019.
Republicans say there is no way they can agree.
“We’re not going to shackle the president of the United States—can’t do it,” said House Appropriations Committee Chairman Tom Cole (R., Okla.). “We’re not going to do that to a Republican president and we never tried to do it to a Democratic president.”
The spending fight is one aspect of a broader discussion about whether Congress has ceded too much power to the president, either by passing laws that expand his authority or empowering him through their own inaction.
It will all end up in the Supreme Court, which Trump has a 6-3 edge. I blame the Democrats for this edge because they lost track of what most Americans care about. A solid opposition party is useful, but we do not have that now. Sorry Wolf, I know this is political, but I am responding to a political issue that very much affects the economy. It is tough to separate the two at the national level.
Then the Framers created a co-equal branch for nothing. Note they gave Senators 6 year terms, so the chamber of sober second thought could outlast a Pres term.
With T having captured the Senate, the US is now an effective monarchy.
George Washington refused to run for a second term because he thought the government was turning into factions. (He also wanted to return to his farm.)
Isn’t it odd that the US, which rebelled against monarchy, now has a closer version than the UK, Oz, Canada or NZ. What is the use of King Charles?
He blocks the position. He has no executive power, but denies the position to a would- be executive monarch. Sometimes evolution works.
Calm down, they are just cutting fat. Were you this upset when they increased all department budgets by HUGE percentages during Bidens first year. If not, why not.
WSJ: They Crashed the Economy in 2008. Now They’re Back and Bigger Than Ever.
Wall Street is once again creating and selling securities backed by everything—the more creative the better—including corporate loans and consumer credit-card debt, lease payments on cars, airplanes and golf carts, and payments to data centers. Once dominated by bonds backed by home mortgages, deals now reach into nearly every cranny of the economy.
“It’s amazing to me,” said Lesley Goldwasser, a managing partner with GreensLedge, a boutique investment bank that focuses on structured credit. “I have watched this with absolute wonder.”
New U.S. issuance of some of the most popular flavors of publicly traded structured credit hit record levels in 2024 and are expected to surpass those tallies this year, according to S&P Global. New asset-backed securities totaled $335 billion last year. Collateralized loan obligations, or baskets of corporate debt, rose to $201 billion, also an all-time high.
To understand how far they’ve pushed this gambling, and insider trading, the current administration just announced that craptocurrencies will be part of a US “crypto strategic reserve.” In other words, they’re now gambling with taxpayer dollars in order to pump up and protect the wealth of the billionaires who are the “whales” in crypto.
AI is only as smart as humans. And that’s not very good.
Take for instance:
Bank lending = M*Vt
Nonbank lending = Vt
Bank lending is inflationary (where S “≠” I)
Nonbank lending is noninflationary (where S = I)
Currency + demand deposits were 27 percent of non-transaction accounts prior to C-19. Today they represent 56 percent of non-transaction accounts.
That’s why Shadow Stats says there’s been “a flight to liquidity”.
The economy is not due for a recession.
‘Trump announces strategic crypto reserve including bitcoin, Solana and XRP’
On CNBC site so prob not a hoax. The idea of something that costs nothing to create but can be sold to the gullible can’t be resisted. Is this reserve to back up the US$?
That was one of Trump’s blatant vote-buying promises.
They could just transfer the 180,000 bitcoin plus the other tokens that the government already holds to the reserve and call it a day. Those tokens were seized under prior Presidents from criminal actors. In the past, the government sold those after a while. So maybe they just don’t sell them this time. And they could add any additional tokens they seize from criminal actors in the future.
He threw his on Trump Coin into the mix also. What a scam. The ‘You S Aye’ now has a strategic reserve of bags of air. Bags of Air!
Sad thing is – people buy ‘em!
You have now entered the Twilight Zone…
Don’t panic.
But pay attention?
Some spending in January and February were anticipating the rise in prices coming with Tariffs. Now that they are in place anticipating a drop off in spending.