June 10, 2012
Economists seem to specialize in saying silly things about the economy. In a NYT article that discussed the prospect of consumers leading a recovery, Nigel Gault, chief domestic economist at IHS Global Insight, is cited as saying that it would take a jump in employment to bring about a rebound in house sales.
It is difficult to understand why any economist would expect sales to move substantially above current levels. Existing home sales have been around 4.6 million in recent months. By comparison, in the relatively healthy pre-bubble economy of the mid 90s existing home sales averaged a bit more than 3.5 million. This means that sales are already close to 30 percent above their pre-bubble level even though population has only increased by around 10 percent over this period. It is hard to imagine why any economist would expect sales to be so much higher now than in the pre-bubble period.
It’s also worth noting that savings rate remains far below its long-term average which means that consumer spending is high relative to their disposable income. It is not clear why economists would expect consumer spending to go still higher, which would imply a lower savings rate.
This seems especially unlikely since the huge baby boom cohort is approaching retirement with very little savings. We might expect to see baby boomers saving a higher than normal share of their income in their remaining years in the workforce.
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