Saturday, December 09, 2006

M E W vs. Consumer Spending


"M E W" is the acronym for Mortgage Equity Withdrawal--the money spent on stuff OTHER than the house, improvements to the house, and associated costs of obtaining the mortgage (points, real-estate fees, etc.)

Got it?

Good.

Well, maybe not-so-good--as MEW has been trending down, sharply, in the past couple of quarters.

The creator of the above graph admits that it is not necessarily precise--the calculations are based on 'pretty-close-to-reality' numbers, but some of the key component numbers are almost impossible to determine. However, the graph seems to comport with what we already know--it passes the 'smell test.'

It ain't good news, however.

HT: Calculated Risk

8 comments:

The Asian Badger said...

I haven't looked at this indicator for awhile...I guess I should.

You're right though, it's not good news.

jp said...

Is it good news for a fiscal conservative?

Dad29 said...

JP, your question is vague.

What the MEW contraction means is a decrease (or at best a leveling) of consumer spending in the 12-24 month period (or maybe longer.)

What does "fiscal conservatism" have to do with that?

jp said...

Would not a fiscal conservative prefer less consumer spending, more saving and less debt?

Dad29 said...

Yup.

As long as the MEW decline signifies increased savings and less debt, it's good.

Problem is--we don't know exactly what it signifies, other than less mortgage-equity-withdrawals.

We SUSPECT it will result in less spending.

jp said...

Does not a decline in MEW usually result in less mortgage debt?

Dad29 said...

Generally, one expects that less MEW means less debt.

If you're going towards "less debt means a better balance sheet," you are correct.

It's also likely to mean less spending on goodies--which means that the GDP will slow down.

That's not bad in and of itself; but generally speaking, both Gummint and economists like to see growing GDP. Gummint for the obvious reason: more tax revenue. Economists (generally) because growing GDP means expanding activity--which is to say, non-deflationary trend.

jp said...

Not linking spending, saving, and debt is not wise.