Why are people spending if jobs are scarce?

In Thursday's blog we looked at the New Economy Index, which measures the strength of the U.S. retail/consumer economy in real time.  It’s currently telling us not to worry about the near term economic outlook, which is clearly still up.  One of the components of the NEI which is lagging, however, is Monster Worldwide (MWW).  MWW is a reasonably good gauge of the U.S. employment outlook and as you can see by looking at Monster’s chart, the jobs outlook has been less than stellar lately.

If the employment outlook is so weak, then how can the increased consumer spending of the past several months be explained?  The answer can be found in the real estate market of all places.  The Fed’s QE3 stimulus program has had its desired effect of lifting housing prices, which in turn has triggered a refinancing boom for U.S. homeowners.  The powerful lift the real estate bounce has given to the U.S. economy is reflected in the Philly Housing Index (HGX), which is currently at a 5-year high.

Yet when viewed from the vantage point of the 10-year chart, we can see that the house market has a long way to go to recover its 2005 highs before the housing bust.

Currently three out of four mortgages being made today are to refinance existing loans.  According to The Kiplinger Letter, “About 11 million homeowners will use refis this year to cut interest rates, putting more cash in their pockets each month.  All told…$27.5 billion in savings this year, available for spending on groceries, apparel, gasoline and other items.”  

Kiplinger forecasts that the refi boom will settle down by the end of next year and estimates that by 2014, less than half of all mortgages will be made to refinance existing loans, roughly the same as before the recession.