CONSUMER CREDIT & SPENDING

June 8 -- My hope (and the inherent danger) is that consumer sentiment isn't so strong that people return to old ways or less frugal ways that they were exhibiting a few months ago. I don't think they are really, but its something to think about and keep in mind. The bravado of American consumerism and expectation is quite strong considering its only somewhat founded.

The reason I say this is because of a report this morning that caught my attention - the delinquincy rate (i.e. 3 months or more past due) for credit cards in 1Q 2009 rose 11%. Also, the average total debt on credit cards rose from 5500 to 5700. This is occuring when less credit is being issued and more people are relient on credit to get by day to day without jobs, etc. This is ground breaking stuff but an underlying report that continues to echo the theme of bad credit, joblessness and consumerism that is going to temper any economic recovery expectations for the next 18 months.

June 5 -- Kapow! Consumer credit decreased for April by -15.7 BILLION dollars. That follows the severe contraction of the previous month (which was reported as -11 billion but revised to actually be -16.6 billions), and was still more than the expected contraction of -6 billion! This severely underscores the new consumer that we'll see emerging during this "recovery" - a consumer that is frugile, that doesn't fuel strong economic growth and that is constantly worried about their jobs/future earnings and that wont be able to buy homes, cars and other big ticket items easily due to limited ability to leverage their limited incomes. That's a reality check for those expecting to return to strong growth days - and its an interesting sub-commentary on the health and strength of banks.

June 1 -- A report this morning on personal income and spending showed that personal income rose marginally -- driven mainly by increased uenmployment benefits (up 8.6%) issued by the government (due to all those unemployed)! More important to note is that actual wages stayed the same. Of more note is that consumer spending continued to decline, albeit only at a rate of -0.1% for May. Nonetheless, the trend of consumers retrenching and saving continues to underscore the "new normal" we are heading for.

May 26 -- Consumer Confidence report this morning showed continued increases. The report was 40.8 in April and jumped to 54.9 in May (biggest jump in 6 years). As noted before, I'm not a huge fan of these reports as they tend to report more about consumer hope and optimism than actual pocketbook intentions. This report stated taht 5% of people plan to buy a car in the next 6 mths (altho a lot can change people's intentions in 6 mths) and 2.3% plan to buy a home. 5% described employment opportunities as "plentiful." Remember, GROWING economies are supposed to create job opportunities. Sounds like a far cry from our current state of affairs.


More May 15 -- Citigroup, Wells Fargo, and American Express have all stated that credit card defaults reached RECORD highs this past April (i dont want to capitalize "high" because it might make it seem like that's a good thing). Citi's annualized charge-off rate rose to 10.21%, JP Morgan Chase (which issues alot of VISA) had a rate of 8.07%, Wells Fargo's rate was 10.03%, and Discover was at 8.26%... what does this mean? basically it just reinforces earlier commentary that people will have less credit in the future bc companies are pulling back to avoid these losses of charge-offs and defaults by customers. Moreso, it means that more people can't pay their bills or are struggling to. What's that mean? Well, that people are NOT going to start spending like crazy again. They can't afford to. So that means GDP growth and economy growth isnt going back to 2007 anytime soon. I mean years here. And that means less businesses, less employees and a vicious cycle that feeds on itself. Not the end game, but for a country that depended on consumer spending for so long, consumer credit (or lack thereof now) is a big statement.

May 15 -- Ok, so i was going to ignore the "consumer sentiment" report that just came out at 9:55am and which showed a big improvement in March. Why? Because I honestly think its a RIDICULOUS and mostly worthless report. This report is basically a survey of how consumers feel about the economy. So people tend to take this report 2 ways: (1) if consumers feel good about the economy they must know something and be experiencing good things and so the economy must be improving; and/or (2) if consumers feel good about the economy then they'll spend $ and that will then in turn contribute to improving the economy via sales, etc.

My opinion is that consumer sentiment = consumer HOPE. and hope is not reality. Yes, consumer sentiment has increased and is increasing (the reading grew from 65.1 in March to 67.9 for April...which is equivilent to the consumer sentiment reported last September fyi). But that just means that people see the government coming in and doing things...they see news articles and media talk of the latest fads about SOME reports showing POSSIBLE progress and "green shoots"...they see the stock mark TREND going up...they DONT see underlying fundamental problems...they DONT see that even if unemployment is starting to level off, that job creation is NOT going to take it back down to healthy levels nearly as quickly. People have had a new President and new actions and good market news lately, so of course they are going to have increased optimism and report increased consumer sentiment. But that DOESN'T mean that they are spending more. No, they are getting the SAME bills and the SAME limited paycheck from the SAME job they are scared they're going to lose. So while they HOPE things are getting better, this report doesn't do much to indicate how the underlying fundamentals of the economy are going.

If the brightest minds disagree on how things are going, then why should the average joe's (and i'll be the first to consider myself less than an average joe) opinion influence market moves? I just don't like this report or any of the media hype it gets.

May 13 -- It appears that Meredith Whitney's comments about a weakening consumer and the consumer's lack of ability and willingness to support the economic recovery and future growth panned out in April. Retail Sales came in at a -0.4% for April. Economists expected a 0.1% increase. This undermines a serious "green shoot" in the recent rally (esp if the trend continues in future months). It should be noted that the consumer declines extended to ALL sectors, including but not limited to electronics, food & beverage, gas, and autos.

Also note that prior months were revised downward as well.


May 11th -- consider this, Bank of America cut its credit lines to consumers by $53 billion in 4Q 2008. It cut the same credit lines by OVER $200 billion in 1Q 2009. Flat out, consumers will have less money in 2009 and will spend less. Retailers will be hurt.

May 7th -- it was reported that the credit reduction for consumers was over 11 billion dollars in March. This is much more than the 4 billion concensus. Consumers are using less credit, less credit is being made available to them. In an economy that thrives (70% of GDP) off consumer spending, that's not good news. That means that even if we have hit a bottom in March, the recovery is going to be ultra slow and not this radical upswing that we've been experiencing.

Wanna hear more about credit and consumers? Meredith Whitney (a banking analyst who has been spot on with her analysis and calls of the banking sector's demise (as well as the recent rally for that matter) states that consumer credit will be reduced by 2.7 TRILLION through 2010. That's a 57% decrease from the credit available to consumers in mid 2007. So you tell me, if people are losing their jobs, those that are keeping there jobs are taking pay cuts, and people have credit card debt that they can't pay (let alone pay their daily bills out of their regular paychecks), then how is Average Joe going to buy food, pay down his credit cards and support the economy by 70% when he has LESS credit available. I'm not saying more credit should be made available at all. I'm just pointing out that there is pain (although probably healthy pain) coming and that means the economy suffers and the market suffers.