It’s been a bit of a mixed bag this week in the US. Yesterday official data was released to show Uncle Sam performed a lot better in the third quarter of this year than we previously thought. A few weeks ago, the official compiler of stats state side had annualised GDP in the third quarter running at a somewhat anaemic 1.6 percent. Yesterday, however, it revised its work, and upped the score, saying that the economy did in fact grow by an almost respectable 2.2 percent.
Economists expect the US economy to slow significantly over the next few quarters and the period just gone was thought to represent the beginning of this precarious period, but the revised data gave economists some relief. And ‘phew’ went markets too, as the dollar ended its falling run, picking up from another 20 month low, seen before the data was released.
Yet, the confidence of the poor old US consumer is still on the ebb. Earlier in the week, the US Conference Board revealed the latest instalment in its Consumer Confidence Index. Analysts had expected the index to rise, from last month’s score of 105.1, to around 106. But alas, they were wrong. It fell all the way down to 102.9.
What with the October housing market seeing the biggest fall in the median price of houses ever recorded (see yesterday’s issue), it would seem inevitable that the weak consumer confidence and housing data will lead to much bigger falls in GDP in the quarters ahead.
But, before we close on this theme, here is a thought for further analysis at a later date. The US consumer is in debt - we all know that. The UK consumer might face historically high levels of net borrowing, but actually it’s quite modest compared to the typical US debt. It’s tempting to conclude, therefore, that the US consumer is in even more difficultly that the average Brit. But there is another way of looking at this. By net debt we mean borrowings minus value of assets. But what do we mean by value of assets? Is wealth boosted by high property valuation? In the US the median price of a home is $221,000, almost half the level seen in the UK. As one of our readers pointed out, see letter below, your typical US home is much larger than the average British home too, meaning that in terms of price per square foot of US property in comparison to a British home, it is lower still. Maybe, the US citizen can afford higher net borrowing, because mortgages don’t have to be so high.
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