Consumer Credit Shrinks, Again

Posted by Ray on October 7, 2009 under Main | Be the First to Comment

Consumers are still deleveraging their balance sheets and reducing their debts which may cause a shock for retailers this holiday season. Today we saw credit contract in September by $12B compared to estimates of $10B which should be alarming considering all the green shoot talk and all the declarations of the recession being over. On the brighter side of things, the $21B in credit contraction reported in August was reduced to only $19B, but the forecast was still only for $10B in total reduction, so draw your own conclusions. When consumer spending is 70% of GDP and most of that consumption was done on credit, what do you think happens when to said GDP when credit contracts?

If you get rid of government payment transfers and all the funny business from the economic data the government puts out you will be rather shocked that those green shoots are nothing more than sleight of hand magic tricks. One must look beyond the headlines to get to the real numbers to see what I am talking about, like the employment report, I personally get a kick out the birth/death model, which you must go to the website to actually see because they are so proud of it they don’t actually include it in the report, but the numbers impact the unemployment data. In September the BLS created some 34K jobs out of thin air based on this data, which is less than usual actually, but when the employment report was really high the birth/death model was pumping out big time numbers folks.

In fact, the numbers were so skewed that the BLS announced that it inadvertently added some 825K jobs to the plus category that never existed in as of March of 2009. Even though they know they made this error, they will correct it in February 2010 almost a full year later. Let us not forget about the U-6 data which shows a healthy 17% of Americans are unemployed or underemployed, this is the number that they used to use during the Great Depression, just so you know. There are all sorts of little things that you need to look at, but essentially in September some 785,000 people are out of work if you look at the household survey.

There you have it. Data musings from consumer credit to the employment report, all equaling the same thing, no recovery. So far most of the earnings are showing very little to no top line earnings growth, except for those providing value for consumers and, surprisingly, Alcoa which shocked me frankly. I contend that if Yum Brands missed on the top line, even by a little, which is telling in my opinion.