Commentaries
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Consumers still have a lot of wood to chop
What with unemployment climbing, housing as well as equities still well below their peaks and general anxiety about when the economy is going to rebound, it’s good news that consumers are cutting back on credit after binging for years. But Josh Shapiro, economist at MFR Inc, is not impressed.
Since the peak in July 2008, consumer credit outstanding has fallen by $119 billion as households struggle to get their balance sheets in order after asset prices melted down. To put matters into perspective, the Federal Reserve reports that as of the end of Q2, the value of household net worth had plunged by $11 trillion from its peak in Q3 2007 (a staggering sum, equal to almost 80% of nominal GDP). So, while representing a good start, the deleveraging that the household sector has accomplished to date is just that, a start.
You can see the Fed’s data here.
Not looking hot on the jobs front
Data just out shows the pace of joblessness picked up in September, snapping what had been a steady improvement from “really terrible” to “at least it’s not as terrible as the prior month.” The drop in non-farm payrolls was even worse than Goldman Sach’s downwardly revised -250K forecast, coming in at -263K. But also take a look at July: revised to -304 from -276k. August was revised to -201K from -216K.
The unemployment rate ticked up an expected 0.1 ppt to 9.8%.
Also average hours worked in a week slipped further to 33.0 from 33.1. I guess employers are cutting hours as well as jobs. Not exactly confidence inspiring for the nation’s shoppers.
Deleveraging in action, Bank of England edition
Ever since branches started forming outside Northern Rock branches two years ago, British consumers have been told they have way too much debt. They finally appear to be paying attention. Bank of England data released today shows net lending to individuals fell by £600m between June and July. Nothing surprising there, you might say. Surely it’s only normal that people are paying back their debts. Except that this is the first drop since the Bank started recording monthly data back in 1993. Or, as the Bank’s statisticians put it:
Total net lending to individuals fell by £0.6 billion in July, showing a net repayment for the first time in the series.
It’s a long way from 950 for the S&P 500
It’s hard to believe that little over a month ago, investors were holding their breath to see if the S&P 500 had enough momentum to burst through 950 – a psychological level that had held firm since November of last year. Carry through buying Monday from last week’s renewed cheer that the U.S. and global economies were leaving recession behind has pushed the S&P 500 to 1033, its highest level since Oct. 6, 2008 when it traded at 1056.89.
But as I noted here last week, markets continue to be pretty fickle when it comes to betting on recovery vs. continuing slump.
The negative feedback loop
Another month, another dismal jobs report from the U.S. Labor Department. It’s hard not to gulp when you see another 467K jobs lost this month. And an unemployment rate of 9.5% isn’t exactly heartwarming.
The jobs report certainly has its detractors who say it’s not the best indicator to watch when you’re looking for signs of recovery since it lags turning points in the economy. But given the role of the U.S. consumer, who has driven the economy out of previous recessions, the rapid fire deterioration in the labor market is likely to create a negative feedback loop.
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The Wall
