Closing Out 2011 — Six Graphs

Source: Decline of the Empire

As we enter the final weekend of 2011, it seems appropriate to look at some data which sums up our position. Believe it or not, this was a pretty good year. Count your lucky stars. There was a small oil price shock, but not a really big one. According to the official data, we did not have a recession. We didn’t have another financial crisis. This has been called muddling through.

Nonetheless, there is no reason to feel good about our prospects, as the next six graphs demonstrate.

Click to enlarge. From Doug Short’s The Divergence Between Gasoline And Oil Prices Can’t Last For Long. The “official” CPI, which is almost certainly understated, is on the left. Look at the items circled in red. Energy costs have increased 114%, medical care has gone up 58%, and college tuitions have risen 112%. By various measurements, like median household income, incomes for all but the top-tier earners have declined since 2000.

From Gregor MacDonald’s Under the Surface of Non-OPEC Supply. You can see that oil production outside of OPEC is flat. Gregor says “In 2002 Non-OPEC oil production contributed 60.75% of the world’s total oil supply… So far in 2011, Non-OPEC oil production now accounts for 57.12% of global supply, with nearly 1/4 of that now coming from Russia… Technology, competition, and access to capital … have not been able to overcome the limits of geology. Global giants such as Royal Dutch Shell and Exxon Mobil have essentially abandoned the effort to meaningfully expand their oil reserves. Instead, they are now shifting course in favor of a strong, natural gas emphasis.”

From Zillow’s U.S. Homes Expected to Lose Nearly $700 Billion in Value in 2011. “Homes in the United States are expected to lose more than $681 billion in value during 2011… While homeowners suffered through another year of steep losses, the good news is that homes are losing value at a substantially slower pace as the market works its way towards the bottom … Compared to last year when we saw sharp declines following the expiration of the homebuyer tax credits, this year we saw some organic improvement in home values, in terms of a slowed depreciation rate, which resulted in a smaller total value loss for the year. Zillow’s analysis shows less value was lost in the latter half of the year due to increased stabilization of home values.” Now look at the next graph.

Click to enlarge. From Barry Ritholtz’s Case Shiller 100 Year Chart (2011 Update). Do you see that dotted red line? If home values revert to their historical level (since the early 1950s), we can expect home prices to follow that red line. In so far as the value of one’s home is the largest factor by far in household net worth, we can expect large wealth declines over the next several years.

Click to enlarge. Household debt levels as of 2011Q3 from Calculated Risk as presented in my post Household Debt Mountain Grows, Nobody Cares. Total debt, including the revised student loan balance, is now $11.66 trillion. Total student loan debt probably surpassed 1 trillion dollars this year. Total household debt is not as high as it was in 2008, but student loan debt is growing by leaps and bounds. See college tuition inflation in the 1st graph above.

If there was any good news, I would report it. For example, some have been encouraged by the recent downward trend in jobless claims. We’ll see if that continues. I am waiting for to see what happens when holiday workers are fired in January and February. All such trends must be seen in context. Here’s the 6th and final graph.

From Mish’s Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force (December 2, 2011). There are fewer nonfarm payroll jobs now than there were prior to the 2001 recession.

Muddling through must eventually end. Many think 2012 will be the year it does. That’s what I think too. See my DOTE Predictions For 2012.

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