Are The Jetsons’ Jets Still On?

The U.S. Consumer: Are The Jetsons’ Jets Still On? by Danielle DiMartino Booth

Mention George Jetson, and we not only get the picture but mentally hum the tune. Tell us the show was only produced for one season way back in 1962, and we think that can’t be right. The show was only produced for one season? But we all watched it for years. Those couldn’t have all been reruns! Were they?

As is always the case, facts don’t lie. After debuting on Sunday, September 23, 1962, the Jetsons only managed to grace the little screen for 24 episodes. And yet, the show endured in reruns for multiple generations and is as familiar today as it was way back when. Heck, most of us can probably name Jane, Judy, Elroy, Astro the dog and even Rosey the Robot maid!

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And now, here we are, dreaming the still-unrealized dream of flying cars and helpful, cheerful robots making our everyday lives that much easier save that one exception — Mr. Spacely, George’s ill-tempered boss.

As Smithsonian.com writer Matt Novak wrote in a 2012 celebration of the show’s 50th Anniversary, the Jetson’s designers were deeply inspired by their working environment. The Hanna-Barbera studios in southern California captured, “a style that best represented postwar consumer culture promises of freedom and modernity.”

Today, in a modern world some 53 years into the future, one hoped-for promise for a life of ease, that of financial freedom, continues to elude far too many Americans, this despite the leaps and bounds in the quality of life that have been realized. According to a July survey of Consumer Expectations by the Federal Reserve Bank of New York, one in seven borrowers expects to miss a debt payment, up from one in nine in March.

The survey’s press release noted that, “the uptick was most pronounced for household heads below the age of 40 and those with a high school degree or less.”

A separate New York Fed survey just reported that 15 percent of American families have no, or even worse, negative net wealth.

Houston, do we have a problem? While that’s certainly the case, these reports are likely to be roundly ignored. If there’s one thing that’s been given short shrift in the current credit cycle, it’s the role of consumer credit and the stress that continues to emanate from overly indebted U.S. families.

We’ve been brainwashed into believing that the massive debt taken on by the government was solely undertaken to offset the historic deleveraging that took place in the U.S. household sector, which busily and prudently cleaned up its balance sheet. All is well?

Try explaining then, how in June, consumer credit hit a fresh record high of $3.64 trillion? It’s true that nonmortgage consumer credit ratcheted back beginning in July 2008, when it reached its prior peak of $2.7 trillion. But this period, described by hedge fund giant Ray Dalio as a ‘beautiful deleveraging’ was not one for the ages. It came to an abrupt halt in March 2011, when consumer credit surpassed $2.7 trillion once again. It’s safe to say that nearly a trillion dollars later, households haven’t looked back.

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Hold on a minute here! Isn’t debt growth a reflection of a healthy and happy economy? Maybe. It depends on your perspective. Rational debt levels make all the sense in the world if they’re growing at a similar pace to that of incomes.

If that logic holds, the latest batch of data from June should give you pause. Disposable personal income growth, adjusted for inflation, grew by 2.2 percent over last year, a full percentage point below March’s 3.2-percent pace. That downshift helps explain two things. For starters, the saving rate fell in June to 5.3 percent, the lowest since last October. Meanwhile, revolving credit growth, aka credit card spending, galloped ahead at a 9.7-percent annual rate.

A Financial Times story corroborated the recent acceleration in consumer borrowing, at least as it pertains to the revolving credit variety. According to the FT, U.S. banks extended $18 trillion in credit card and overdraft loans to consumers in the three months through June, the fastest pace since 2007, “triggering concerns that they are taking on too much risk in a slowing economy.”

And yet a Wall Street Journal headline from the same week read as follows: “U.S. Consumer Credit Increased at Slowest Pace in 4 Years in June.”

What gives? The problem, if you can call it that, was that nonrevolving credit, dominated by student and auto loans, grew at a 2.07-percent rate, the slowest since August 2011.

June’s data certainly square with car sales easing off record highs in recent months and the decline we’ve seen in economic growth through the first half of the year. What the numbers don’t speak to is an accelerating economy.

For that favorable outcome, we’d have to have a pickup in productivity growth. And that is categorically not in today’s cards. In the most recent report, we found that productivity growth fell by a 0.5-percent pace in the second quarter, woefully below estimates predicting it would rise at a 0.4-percent rate. This big miss dragged the average growth rate over the last four quarters to .175 percent, “basically zero,” in the words of Bookmark Advisors’ aptly named Peter Boockvar.

Dismal productivity is what you get when you combine a capital investment strike, a labor market plagued by immobility, a slowdown in new business formation, Baby Boomers who don’t have the financial wherewithal to retire and an immense increase in the cost to do business care of spiraling, crippling regulations.

“The lack of productivity growth directly relates to the slow economic recovery since the recession,” observed Boockvar. “Combine this with a good pace of hiring, and higher labor costs as a percent of revenue will only continue to increase.”

Adding it all up prompted Gluskin Sheff’s David Rosenberg to pose the following rhetorical question: “Is it possible the market is a tad ahead of itself?” After all, though the profits recession has slowed, it’s still very much intact. The S&P 500’s reported earnings are poised to fall by 3.5 percent over last year in the second quarter on the heels of the first quarter’s 5.3-percent decline.

In keeping with the theme of emerging strains among households, Rosenberg points out that Capital One topped off its domestic credit card loss reserves by $375 million, while, “despite Jamie Dimon’s bravado on the economy, JP Morgan added $250 million to its loan loss reserves as well.”

U.S. retailers are also suffering. And it’s not simply a reflection of the changing retail guard away from traditional bricks and mortar to Amazonian Amazon. A handful of respectable retailers have roundly reported that customers have begun to demand deeper discounts evincing of the strains pressuring U.S. consumers.

The bottom line, captured in a recent Bloomberg story: “Without stronger growth in productivity, a tight labor market won’t raise living standards as much as it should.”

Mega-retailer WalMart appears to be acknowledging the new reality of acute price sensitivity among consumers combined with the permanent shift to shopping remotely. The original big box, discount retailer is buying into a different kind of Jet, as in Jet.com, a two-year old startup ecommerce retailer making inroads competing with Amazon for those coveted hip Millennials’ shopping dollars.

Wal-Mart CEO Doug McMillon summed up the deal’s appeal as follows: “We’re looking for ways to lower prices, broaden our assortment, and offer the simplest, easiest shopping experience because it’s what our customers want.”

Clearly we’re all in the market for the best of all worlds, just as all those Jetsons reruns repeatedly promised. In the event you’re still wondering what went wrong with the futuristic show, one that by all rights should have aired for many, many seasons, it comes down to one word: color. The not-destined-to-be-a-series, one-season-wonder depicting the future of technology was literally ahead of its time, produced and broadcast in color at a time when less than three percent of American families had a color television set in their homes. Understandably, a show that shined in technicolor fell flat in black and white.

Today we’re all about that color. Sure, black and white has its place among the classics, but hey, this is the easy money future courtesy of your nation’s all too friendly Federal Reserve. Credit is your friend, your BFF, don’t you know?

Plus, we like watching our monster TVs and living our lives in full color. And for many of us, we couldn’t be happier than when we’re flaunting our brightly colored credit cardS, with an “S”, as in multitudes of them in our wallets, all the better with which to buy more colorful stuff. Surely that beats the stuffiness of black and white. Unless, that is, we’ve simply forgotten how beautiful our budgets operating in the black can be, as in living within our collective means.

The U.S. Consumer: Are The Jetsons' Jets Still On?

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Called "The Dallas Fed's Resident Soothsayer" by D Magazine, Danielle DiMartino Booth is sought after for her depth of knowledge on the economy and financial markets. She is a well-known speaker who can tailor her message to a myriad of audiences, once spending a week crossing the ocean to present to groups as diverse as the Portfolio Management Institute in Newport Beach, the Global Interdependence Center in London and the Four States Forestry Association in Texarkana. Danielle spent nine years as a Senior Financial Analyst with the Federal Reserve of Dallas and served as an Advisor on monetary policy to Dallas Federal Reserve President Richard W. Fisher until his retirement in March 2015. She researches, writes and speaks on the financial markets, focusing recently on the ramifications of credit issuance and how it has driven equity and real estate market valuations. Sounding an early warning about the housing bubble in the 2000s, Danielle makes bold predictions based on meticulous research and her unique perspective honed from years in central banking and on Wall Street. Danielle began her career in New York at Credit Suisse and Donaldson, Lufkin & Jenrette where she worked in the fixed income, public equity and private equity markets. Danielle earned her BBA as a College of Business Scholar at the University of Texas at San Antonio. She holds an MBA in Finance and International Business from the University of Texas at Austin and an MS in Journalism from Columbia University. Danielle resides in University Park, Texas, with her husband John and their four children. In addition to many volunteer hours spent at her children's schools, she serves on the Board of Management of the Park Cities YMCA.