Cheap oil was supposed to boost consumer spending, but instead consumers spent less as incomes fell. According to the Bureau of Economic Analysis, U.S. GDP grew at just a 2.6% annual rate in the fourth quarter of 2014, far below expectations of 3%.
Although unemployment claims have fallen to their lowest point in fifteen years, home sales are tumbling as price gains make homes unaffordable for millions.
Throughout 2013 and 2014, housing saw steady price gains while low interest rates, which fell markedly throughout 2014, encouraged more homebuyers to the market. That trend may be meeting resistance, causing home sales to tumble as flat wages and high prices make real estate unaffordable for many.
Home prices and home sales continue to rise, while consumer confidence unexpectedly surged to its highest point since 2007.
Consumer confidence surged to 102.9 in January, up over 10% from its December levels. According to the Conference Board, the consumer confidence index rose on improved conditions for businesses and workers, creating an expectation of higher earnings and greater spending in the near term.
When we think about income and wealth inequalities we are tempted to lay blame on the old way of doing things. In Capital in the Twenty-First Century, Thomas Piketty picks out inherited money as a driver of unsustainable disparities between the global rich and poor. Oxfam recently pinpointed the high-profit finance and pharmaceutical industries as engines of inequality that distribute wealth to the wealthy.
Reasonable people can debate some of the details, but there was little doubt that last week’s big event, the ECB’s asset purchases, was widely anticipated. Nevertheless, what is striking is the repeated surprises by officials over the past several months.
Homebuilders are becoming increasingly pessimistic, as stagnant wages and falling demand from investors is pinching the market.
The National Association of Home Builders saw its builder confidence index fall one point to 57, slightly below expectations, as recent improvements in the housing market cool off. While any number above 50 indicates that the market is still good, the decline also suggests that an acceleration of growth going into 2015 is less likely than previously expected.
The US dollar’s strength is a product of both the expected trajectory of Fed policy and the fact that ECB and BOJ are still in aggressive easing modes. Both sides of the equation are being driven home. The Wall Street Journal’s Hilsenrath, recognized to be well sourced at the Federal Reserve, reaffirms that it is on track to raise rates later this year. Next week, the FOMC will likely continue to recognize that it can be “patient”.
In an interview with CNBC late last week, Germany Finance Minister Steffen Kampeter dismissed growing concerns at investment banks, think tanks, government agencies, and central banks that deflation has become inevitable in Europe.
“This is not what economists and textbooks describe as a deflation spiral, this is a modest price development,” he said in a statement.
Retail sales fell 0.9% as jobless claims rose to a four-month high.
The Department of Commerce reported Wednesday that retail sales fell 0.9% month-over-month on a seasonally adjusted basis in December, representing a 3.2% year-over-year increase from December 2013, unadjusted for price differences.
Retail trade sales were down even lower, with a 1.1% decline from November, representing a 2.6% year-over-year rise.
Modern capitalism has a massive structural flaw in one of the cornerstones of its existence. The corporations which form the predominant business structure and which are the main instrument for dividing wealth have been operating on a false premise.
