The US Economy Is Not Awesome And It’s Not Decoupled

When the bubble vision stock peddlers get desperate, they talk decoupling. So by the end of today’s bloodbath you would have thought China was on another planet, and that “commodities” were some trinket-like collectibles gathered by people who don’t wear long pants, drink coca cola or jabber on their cell phones.

On these fine shores, of course, its all awesome from sea to shinning sea. So don’t be troubled. Buy the dip.

Never mind that we are in month 74 of this so-called recovery and that after year upon year of promised “escape velocity” the reliable signs of said event are still few and far between. But the recovery narrative stays alive because there is always some stray factoids of seasonally maladjusted, yet-to-be-revised “incoming data” that can excite the MSM headline writers and bubble vision talking heads.

Today the data on construction spending and housing took their turn in the awesome circle. Thank heavens that the headline writing software used by the financial press doesn’t yet read graphical data. Otherwise they might have reported that private residential construction soared in July—–well, all the way back to January 2002 levels.

And those are the nominal dollars that the Fed has done its level best to depreciate in the 13 years since then. In fact, on an inflation-adjusted basis the housing construction spend is still at 1992 levels.

What had the headline software giddy, of course, was the year over year comps, which were in double digits. Yet did the talking heads bother to note the deep hook in last summer’s data?

No they didn’t. Otherwise they might have seen that the two-year stack in July came in at a hardly fulsome 3.7% annual rate and that nominal private housing spending is still 7% below December 2007 and 43% below the early 2006 peak.

More importantly, they might have noticed that this is no longer your grandfather’s housing market. The US housing stock got way over-built during the Greenspan bubble and the incoming generation of home-buyers has gotten buried in $1.2 trillion of student debt.

So notwithstanding the mini-boom in multi-family apartment construction, the $380 billion annual rate of spending in July amounted to only 2.1% of GDP. That’s the same rock bottom ratio registered in July 2013, and is clear evidence that the housing needle has not really moved at all.

Indeed back in January 2002 when the $380 billion annualized mark was first crossed, housing construction accounted for 3.7% of GDP, and during much of the prior two decades it had posted at 4-5% of GDP.