A Nation of Zombie Households

“The primary difference between Japan and the United States at this point of their respective monetary malaises is that whereas Japan created a nation of zombie corporations, the United States is creating a nation of zombie households.”

- James Aitken, Aitken Advisors

Monday’s chart of the day comes from the Annaly Mortgage blog. Annaly previously noted that the primary difference between Japan and the U.S. is that Japan created a nation of zombie corporations while the U.S. has created a nation of zombie households. Annaly elaborates on the topic by showing not only the unemployment rate in historical terms but also shows just how stretched the housing market remains – even after the massive price declines. Although recent retails sales have ticked higher, it’s difficult to disagree with the Annaly analysis that the U.S. is becoming a nation of zombie households – particularly given the continued de-leveraging, high private debts and loss of wealth in every citizen’s largest assets.

As the graph makes very clear, however, this market is undergoing significant change, as all of the data are running outside of the two standard deviation intervals (we would argue that the pink line-total homes for sale-is only down because folks are taking unsold homes off the market). To get granular, let’s pick one data series and data point. Delinquencies as a percent of total loans since 1982 have averaged 4.93%. One standard deviation from the mean over that time period is 0.88%, meaning that 68.3% of all of the data points will fall within a band of 4.05% to 5.81%. The latest data point (Q209) for delinquencies of 9.24% is 4.31% higher than the mean, or just shy of five standard deviations, a very rare occurrence indeed (99.9999426697% of all data points will fall within five standard deviations). We expect that all of these data points will continue to fall in the skinny part of distribution tails-for example today’s unemployment print (which is not on the graph) of 10.2% is 2.73 standard deviations from the mean, up from 2.46 last month.

If this isn’t Zombieland, we don’t know what is…

Comments

[Graham and ...:]

Zombie households may be worse than zombie corporations, meaning that our ailment would be worse than the "Japan" disease.

Nov 09 12:32 PM

[buildcastles:]

Japan gave many advantages to land and business purchase same as as the USA did in residential. Now we have to unwind these government incentives.

Nov 09 04:22 PM

[homeschooled:]

The best part of this article is the title, the rest is written in some dead language not easily deciphered.

Nov 10 09:15 AM

[bob adamson:]

Think back over the period of 2002 – 07. Whenever the economy seemed ready to pause that conventional wisdom was that the consumer us tapped out. Now, belatedly, the consumer is truly tapped out.

Arguably, public policy in the US, UK and several other advanced economies assumed that provided consumer inflation did not increase low interest rates could motivate the consumer for the indefinite future and rising residential property values could justify aggressive consumer borrowing and lending practices even though consumer income levels could not. As we all know, there was a massive balance of trade and international repatriation of trade surpluses from Asia which served to prolong and fuel these trends.

The problem therefore was the massive past accumulation of consumer debt which was allowed to continue and artificially encouraged for much too long. To imply that households are now at fault (are the living dead) because they are not yet again responding as before to the lure of cheap consumer credit is not helpful.

Nov 10 09:19 PM