Impending Economic Crash: Consumer Demand Down Hard

Spirit Of Truth

Spirit Of Truth

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Personal consumption is 2/3rds of aggregate demand in the economy. We have had an oil shock as consumers were at the end of their financial tethers. Anticipation of a recession from weakening personal consumption will likewise cause a drop in business investment, the second most important part of aggregate demand. Finally, there's government spending and that is also at the limit given the soaring budget deficit. The stars are aligned for a dramatic reversal in the economy. The stock market should be starting to anticipate this. Everything appears to be on course for a crash in the near-term:

http://www.spiritoftruth.org/stockmarketcrash.htm

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From - http://news.yahoo.com/news?tmpl=story&u=/ap/20050928/ap_on_bi_ge/late_loans

Gas Prices Blamed for Late Credit Payments
By JEANNINE AVERSA, AP Economics Writer
13 minutes ago

WASHINGTON - The percentage of credit card payments that were past due shot up to a record high in the second quarter as surging gasoline prices strained budgets and made it difficult for some people to pay their bills.

The American Bankers Association reported Wednesday that the seasonally adjusted percentage of credit card accounts 30 or more days past due rose in the April-to-June quarter to 4.81 percent. That followed a delinquency rate of 4.76 percent in the first quarter and was the highest since the association began collecting this information in 1973.

"The rise in gas prices is really stretching budgets to the breaking point for some people," the association's chief economist, Jim Chessen, said in an interview. "Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations."

While Chessen mostly blamed high gasoline prices for the rise in credit card delinquencies, other factors also played a role, he said.

With personal savings rates dismally low, people have less of a cushion to absorb the big jumps in energy prices, Chessen said. The personal savings rate dipped to a record low of negative 0.6 percent in July.

Rising borrowing costs also probably contributed to the spike in credit card delinquencies, he said.

The Federal Reserve has been tightening credit since June 2004. That has caused commercial banks' prime lending rate to rise to 6.75 percent, the highest in four years. These rates are used for many short-term consumer loans, including some credit cards and popular home equity lines of credit.

After Hurricane Katrina, gasoline prices jumped past $3 a gallon before calming down. Although damage to oil facilities was less than feared from Hurricane Rita, economists expect gasoline prices to stay high.

The double blow from the two hurricanes is expected to slow overall economic activity and hiring in the months ahead, economists say.

Against this backdrop, credit card delinquencies are likely to remain high in the coming quarters, Chessen suggested.

The association's survey also showed that the delinquency rate on a composite of other types of consumers loans, including auto loans and home equity loans, climbed to 2.22 percent in the second quarter, up from 2.03 percent in the first quarter.

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From - http://news.yahoo.com/news?tmpl=story&u=/nm/20050927/bs_nm/economy_consumers_dc_4

Consumer confidence to near 2-year low
Tue Sep 27,10:16 AM ET

NEW YORK (Reuters) - U.S. consumer confidence plunged in September, a report said on Tuesday. The Conference Board said its gauge of consumer sentiment "plummeted" in September to 86.6 from 105.5 in August.

A Reuters poll of economists had culled a median forecast for a smaller, but still substantial, drop to 95.0.

The Conference Board said the index plunged as Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, pushed consumer confidence to its lowest level in nearly two years. The index read 81.7 in October 2003.

The business research group's present situation index fell to 108.9 from 123.8 while its expectations index fell to 71.7 in September from 93.3 last month.
 
Spirit Of Truth

Spirit Of Truth

Inactive
September 28, 2005 latimes.com

Consumer Sentiment Dives in 1st Post-Katrina Survey

The index's plunge this month is the worst since '90. New-home sales sink in August as a mixed run of housing data persists.

Consumer confidence suffered its biggest drop in 15 years in September as Hurricane Katrina made Americans anxious about the rising costs of heating their homes and filling their gas tanks. The decline raised questions about consumer spending for the rest of this year, including the holiday shopping season.

Meanwhile, the government reported Tuesday that sales of new homes plunged in August by the largest amount in nine months, continuing a string of mixed signals about the health of the housing boom.

The Conference Board said its consumer confidence index, compiled from a survey of U.S. households, dropped 18.9 points to 86.6 from a revised reading of 105.5 in August.

That marked the biggest slide since October 1990, when the index fell 23 points to 62.6 during a recession. This month's reading of confidence was the lowest since October 2003, when the index registered 81.7.

Analysts had expected the September reading to be 98.

The Commerce Department said new-home sales fell 9.9% last month to a seasonally adjusted annual rate of 1.24 million units. Even with the slowdown, the median sales price rose 2.5% from July's level to $220,300. The bigger-than-projected drop in new-home sales could signal that the nation's red-hot housing market is starting to slow down, but reports so far are mixed.

The drop in consumer confidence, which followed an unexpected gain in August, was more jolting, raising more concerns about shoppers' ability to spend in the crucial fall and holiday seasons with gasoline prices expected to remain at $3 per gallon. The high pump prices stem from tight supplies and the fact it may take weeks to restart refineries that closed because of Hurricane Rita.

Even before Katrina slammed into the Gulf Coast on Aug. 29, consumers were struggling to fit higher gasoline prices into their budgets, with that strain showing up in August's modest retail sales gains. Sales have been disappointing again this month, and analysts are concerned that consumers will further retrench when they start paying home heating bills.

Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.

"Today's numbers show that consumers are not very optimistic about the economy. As a result, we will see consumer spending reduced until we see some relief on energy prices," said Gary Thayer, chief economist at A.G. Edwards & Sons. He added, "If we don't get some relief, it looks like it will be a very weak holiday season."

Scott Hoyt, director of consumer economics, at Economy.com, was more upbeat about consumers, warning against reading too much into September's confidence figures. He noted that the key fundamentals for spending — employment and income — are holding up.

Although there have been job losses along the Gulf Coast as a result of Katrina's fallout, economists predict overall healthy job gains of 169,000 when the Labor Department reports its figures Oct. 7.
 
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