This past weekend was one for reflection as once again the wait for the most important piece of monthly economic data yielded as many questions as answers. There were those silver linings of temporary jobs and such, but to borrow a word "sobering" reflects the jobs situation in America. Frightening maybe best describes the situation for those unemployed as the only lifeline they've received thus far is an extension of unemployment benefits. I can say for certain there will come a point when people lose faith and become accustomed to those unemployment checks, especially if their skills are antiquated in the digital world. (I wonder why the government isn't using funds to retrain people to be more competitive so they can reenter the workforce with dignity and power to earn better wages. Teach a man to fish as the old proverb goes makes for smart public policy.) Without a doubt the most glaring trend in the report is unemployment when it includes the marginally attached.
The marginally attached component of the job market includes people that looked for a job over the past 12-months but not in the last four weeks. This number leaped to 2.4 million from 736,000 as 808,000 said they were simply too discouraged. Couple this number with the official unemployment rate and you get 17.5% unemployment. Moreover, there are 9.3 million people working part-time that would like full-time work. The 17.5% unemployed with marginal added is a record, eclipsing the previous record of 17.1% established in December 1982. It's easy to understand why people are discouraged as long-term unemployment (27 weeks+) stands at 5.6 million. The situation makes it difficult to buy into the notion of a jobless recovery, but more than that it suggests there will be a new underclass in America of people that could see an eventual recovery happen without them. I don't think it will be consolation for them that Wall Street executives are making fewer billions. But, their despondency is stoking anxiety among those gainfully employed. A serious problem.
Consumer credit was down again for the eighth month in a row, decreasing $14.8 billion in the month of September. Consensus called for a decline of $10.0 billion. Year over year the 4.8% decline was the steepest since June 1944.
Revolving credit (credit cards): decreased $9.9 billion or 10% year over year, the biggest decline ever on record (started being followed in 1968). Part of the declining credit card credit is the shift to debit by consumers, but there has been a huge decrease in offers for new cards. Take for instance in 3Q09; there were 391.0 million direct mail offers of credit cards down from 1.3 billion or 71% a year earlier. Industry watchers say part of this goes beyond the economy and to the new CARD act that has put certain limitations on the industry. As a result, only 6% of the offers were for fixed rate terms which need 45 days notice to make adjustments.
Non- revolving credit: decreased $4.9 billion or 3.8% year over year and 3.7% quarter over quarter. This number was a real shocker as some of those "cash for clunker" deals should have appeared in this report.
Just consider what these numbers are saying; this is the steepest decline in consumer credit since World War II when the nation was fighting the ultimate battle against Nazi Germany. I get that individual households are repairing their own balance sheets but what I don't get is I also know there are budding entrepreneurs, potential homeowners and others that need/want credit. At a time when banks are sitting on trillions of dollars it's almost criminal that consumer credit is plunging at such an alarming rate. Some bank analysts will say this is actually great, why should banks take a risk. But, at some point banks must lend to make a return on the cash they are sitting on unless they can prop trade the market like Goldman Sachs (NYSE:GS).
Much has been made about the Great Depression, stimulus, social programs, and government spending but it was World War II that pulled the nation out of an economic slump. Not only did demand for materials and supplies to fight the war spark economic activity, but it united the nation. During this economic crisis the nation is fractured and the wound is only getting deeper. The spirit of unity that could be the intangible linchpin to a sustained turn in the economy isn't visible.
The uptrend is still intact but key indices are in double-top territory and could be on the verge of a big breakout or a substantial pullback.