Consumers, Wisely, Show Some Restraint
NEW YORK (TheStreet) -- Three consecutive quarters of economic growth. Gradual improvement in the labor market. And while financial markets have been turbulent, economic activity has been only modestly affected. I have been arguing for some time a recovery would take hold this year -- and that clearly is the case, and then some.
Growth is still on pace to be stronger than anticipated, fundamentals have improved and the lift from unprecedented fiscal and monetary policy support has finally kicked in.
So let's celebrate the recovery and be prepared for a second half of mostly good news for the economy and, hopefully, some recovery in equity prices.
The celebration is likely to be a bit subdued, but that could prove to be a positive thing -- especially if the restraint is being driven by consumers.The pace of the recovery will be affected by a number of factors: the next phase of deleveraging by households; how the Federal Reserve executes an exit strategy; and the playing out of the fiscal debacle in Washington and state capitals. The primary issue in the near term will be centered on how consumers continue down the path of deleveraging and restoring their personal balance sheets. Millions of households have been turned upside down after a decade of debt accumulation followed by the worst downturn in seven decades. Now consumers are figuring out how to pay down debt and get back on solid ground. In terms of consumer deleveraging, we should not kid ourselves about the magnitude of the change required. Debt is still more than 61% of gross domestic product, net worth is still down 17% from its peak and savings rates required to support future obligations need to more than double from current levels. This is before we adjust for the massive underfunding occurring in Washington and state capitals -- underfunding that will eventually have to be addressed.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV