Thursday, February 16, 2017

NY Fed Household Debt Report: Signs of Debt Growth?

The New York Fed reports that household debt rose in 2016 4Q.  This is a positive sign.  The scenario for continued recovery would center on housing recovery and mortgage recovery.  Positive signals include a decline in shelter inflation, a rise in non-shelter inflation, a rise in interest rates, a rise in housing starts and prices, and a rise in mortgages outstanding.  If that doesn't come together, I expect the Fed to overtighten and to trigger a contraction.

Last month's CPI data suggests a possible shift in this direction.  Now, the 2016 4Q household debt data also suggests a positive shift.  Mortgage debt increased by about $130 billion and other household debt also increased.

In both cases, I am concerned that these are just the latest head-fake.  Data from commercial banks suggests that the mortgage data is (not sustained).

Source
So, I remain tentatively neutral-to-bearish, in wait-and-see mode.  There isn't any reason that the expansion should reverse simply due to its age, but this seems like a context where, nevertheless, the risks of being exposed to a contraction are higher than usual.

3 comments:

  1. "There isn't any reason that the expansion should reverse simply due to its age, but this seems like a context where, nevertheless, the risks of being exposed to a contraction are higher than usual."

    Can you expound on why the risk of contraction is higher than usual?

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    Replies
    1. In a nutshell, monetary policy is probably the most important factor in cycles, and public and Fed sentiment are skewed too much toward contraction. So, unless we get a positive demand shock strong enough to move faster than the Fed, they seem destined to overtighten.

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  2. Excellent blogging. All my biases confirmed.

    Also, David Beckworth points out 70% of global central banking pegged to Fed.

    If the Fed tightens with CPI core sans shelter at 1.3%, when would they not tighten?

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