Fed's Beige Book, Healthcare and the Weak Consumer

Beige Book Shows Sluggish Economic Growth at Best

Economic activity continued to stabilize in July and August, but problems remain below the surface. Let’s start with the consumer, which is 70% of the US economy. Consumer spending remained soft in most districts and retail sales were flat.

Most districts reported some improvements in residential real estate, but home prices continued to decline. This is the boost from the $8,000 first time home buyer tax rebate, which ends November 30^th.

Not helping the housing market is the fact that loan demand is weak with continued tight credit standards. Commercial real estate remains weak and nonresidential construction continued to decline. Where are those shovel ready projects? They don’t show up in the Beige Book!

Labor market conditions remained weak across all Districts. There has been an up-tick in temporary hiring and a decline in the pace of layoffs. Job creation seems a long way off with 9.1 million part-timers. The “Real Unemployment Rate” is around 16.5%.

Healthcare a Major Issue for Small Businesses and Consumers

Consider a residential window and door company in Tampa Bay. Three years ago business was booming and the company had 40 employees and 9 subcontractors. With the collapse of the housing market they are struggling to keep 6 employees and 2 subcontractors.

They provided a healthcare plan, but the cost of that plan is now 49% higher. Rather than canceling health insurance and after and company study by the remaining employees, they kept the plan with employees covering the cost increases.

The Federal Reserve tells us there is no risk of inflation, but what about the cost of living. With 9.1 million Americans underemployed and picking up healthcare costs, take home pay does not cover household expenses. This is an economic drag, and indicates that citizens are adjusting to a lower standard of living.

Other Signs That Economic Recovery May Hit a Wall

The Conference Board's Employment Trends Index declined 0.1% in August and is down 18.5% year over year. According to a Manpower survey, hiring plans for the 4^th are the lowest in the history of their survey.

Consumer credit declined a record $21.5 billion in July to $2.47 trillion. The annual decline is now 10.5% as Americans are paying down debt instead of increasing spending.

ABC's Consumer Confidence Poll slipped to -48 from -45 this week. Only 25% of Americans are in the mood to buy things, and just 8% rated the national economy positively.

Daily and Weekly Charts for S&P 500 - Courtesy of Thomson / Reuters

The daily chart for the S&P 500 remains positive on a close today above its 21-day simple moving average at 1011.89 with the August 28^th high at 1039.47 and up trend resistance at 1052.47.

The weekly chart for the S&P 500 remains extremely overbought with a MOJO reading of 9.0. SPX remains positive, but overbought on a weekly close above the five-week modified moving average at 999.83. The Ascending Wedge resistance is 1053.40.

Disclosure: no positions

Comments

[NUCLEAR1929]

consumer is not weak, he is in coma for the next 30 years

2009 Sep 10 10:44 AM