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BAML: Here Comes the Consumer
Will the wealth effect from financial asset and home price appreciate finally assert itself this coming year? Bank of America Merrill Lynch economists give us four reasons why that might be happening:
We see four reasons to expect healthier consumer spending.
First, the worst of the tax shock is over. Both payroll and upper-income tax rates rose at the start of
this year, and we think the negative impact on spending growth should be fading.
Second, consumers have made considerable progress in cleaning up their
balance sheets, reducing debt burdens and accumulating wealth. Households
have gained $16.1 trillion in financial wealth and $3.0 trillion in housing wealth
since their respective troughs (Chart 2).
Third, firing has continued to decline as seen by the drop in jobless claims, although some of this may reflect people
exhausting their benefits. This supports current income but also helps
expectations about future income growth.
Finally, as the labor market tightens, wage growth will improve, although that is more likely in 2015 than in 2014. The
consumer still faces challenges, but we think the tides have turned.
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Monday links: changing views of art
?Tis the season. Ben Carlson at A Wealth of Common Sense ranks Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere as one of the ?best books I?ve read in 2013.?
Quote of the day
smithy Salmon, ?Art is not an investment in the way that the S&P 500 is, and all direct comparisons of the two have a way of invidiously changing the way we look at and think about art in general.? (Reuters)
Chart of the day
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