The stage is set as the Fed has told us to expect a surge in household wages any minute now. Cheap oil and a strong dollar, what I call backward prosperity, didn’t unleash animal spirits.  At some point, however, higher incomes would.   In 2015, wages climbed 5.2% to $56,516 from 2014.  That median household wage is still hovering below previous peaks:

• $57,423 in 2007
• $57,905 back in 1999

But, what few market watchers and economist talk about is the record high level of disposable income.  This is just one of the end results of the carnage of the Great Recession that saw many pay the bills they could, or otherwise, jettison bills they couldn’t afford.

It gets back to the notion that people need to see fatter paychecks, and even then, many folks are going to be hesitant to spend money based on what I call the Great Depression Syndrome.   Those folks that will react to improved wages will probably use a combination of cash and credit. 

Charge It…Maybe

While disposable income is higher, household cash is significantly lower, so the notion of rewarding ourselves with a trip to the mall means we can’t leave home without our credit cards. 

I must say, it might take a serious spurt in confidence to get folks to shift from debit cards and fiscal discipline to credit cards and increased debt.

One deciding factor could be the very low level of savings, which actually spiked in July, but is still in a long-term downtrend dating back to its 1970 peak.

The good news for consumers is that default rates are low, even though we are getting yellow flags in the pace of auto defaults. 

Consumer Default Trends	Aug 2016	Jul 2016	Aug 2015
First Mortgage	0.68%	0.66%	0.84%
Second Mortgage	0.52%	0.44%	0.57%
Bank Card	2.86%	2.92%	2.71%
Auto	1.01%	0.93%	0.90%
Composite	0.85%	0.83%	0.96%

Metro Default Trends	Aug 2016	Jul 2016	Aug 2015
New York	0.91%	0.77%	1.04%
Chicago	0.92%	0.89%	1.21%
Dallas	0.74%	0.69%	0.71%
Los Angeles	0.60%	0.63%	0.76%
Miami	1.21%	1.37%	1.46%

The bottom line is the consumer might be able to come to the rescue of the economy, but the bigger question is will the consumer come to the rescue.

The Market

As the broad market gains momentum, breadth is getting better by all measures.  For the NYSE, advancers were 88% of total movers and NADSAQ 78%.  This is the kind of momentum needed to establish new all-time highs for all the major indices.

Breadth - NASDAQ	Today	Last Week	Breadth - NYSE	Today	Last Week
New Highs	96	46	New Highs	71	16
New Lows	32	45	New Lows	18	22

Equity futures are essentially flat, but the talk of a takeover of Twitter (TWTR) might put a spark in the action. Offsetting this is bad and disappointing news for Facebook and Yahoo, the former overstating video views, and latter a victim of hackers that impacted 500 million people. I think Facebook bounces back, so any dip is a buy for traders.

Comments

So what if we have 5% wage growth, it is a mirage. The assault on business and our system is clearly evident to all us deplorables. Healthcare costs have gone parabolic and it is a miracle that the consumer has not permanently retreated into caves! The ONLY thing keeping this country going is the tenathat city of individuals and the businesses "we didn't build!" Ray Weldon on 9/23/2016 10:26:30 AM

Can anyone explain the big drop in personal income in 2013? Jeff on 9/26/2016 3:45:12 PM

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