Historically, real disposable personal income has been the dominant factor driving consumer spending. As long as businesses maintain employment, and wages continue to rise, reflecting tight labor markets, rising personal income will outweigh the negative impacts of declining home prices, declines in mortgage refinancing, and even the recent increase in energy prices, on consumption.
This assessment presumes that businesses will not cut net jobs. No doubt, jobs will be lost in some industries — real estate, mortgage brokers and related finance, to name a few. But that’s minor in the context of 138 million U.S. workers.
[bold and italics added]
– Mickey Levy (subscription required), Chief Economist, Bank of America
Contrast this with the view of Jeff Gundlach, Chief Investment Officer, TCW Group, whose views I excerpted last week:
……housing accounts for a big chunk of US employment when one takes into account all the construction, finance and retail jobs that depend on a strong housing market [bold and italics added].
So there you have it, as clear as could be, where the bulls and the bears differ about the outlook for the economy: will the housing bust hit employment and therefore consumer spending? The bulls say “no”, the bears say “yes”.