U.S. economy took a tumble in the summer: This MSNBC News story reported that the Commerce Department released the latest statistic on the slowing U.S. economy, where "the gross domestic product shrank at a 0.5 percent annual rate in the July-September quarter." This contraction was weaker than the 0.3 percent rate of decline, as reported a month ago, and the worst showing since the 2001 recession, when the U.S. economy shrank at 1.4 percent in the third quarter of 2001.
Graph showing U.S. gross domestic product growth since 2004. From MSNBC News.White House press secretary Dana Perino called the lower 0.5 percent GDP figure “troubling.”
Also in the MSNBC story, the Federal Deposit Insurance Corp. reported that the list of banks it considers to be troubled, had shot up 50 percent to 171 banks during the third quarter. This is the highest level since 1995. The FDIC said that the banks and savings institutions suffered a 94 percent drop in third quarter profits to $1.7 billion, the lowest profit since the fourth quarter of 1990.
What does all this mean? We're still not out of the woods yet. The third quarter U.S. GDP contraction was greater than what the economists were expecting. The fourth quarter U.S. GDP contraction will probably be greater than the 0.5 percent third quarter contraction. I'll say it will probably be around 0.7 percent contraction for the fourth quarter. When will the U.S. economy start to grow? That will depend on getting the credit market to loosen up in providing more loans to Americans for businesses, autos, and homes. It will also depend on stemming the number of home foreclosures, perhaps renegotiating the adjustable-rate and subprime mortgages into fixed mortgages for Americans, whose home mortgages are going underwater. It will probably also depend on increasing the wages of American workers, where the MSNBC story reported that American's disposable income "fell at an annual rate of 9.2 percent in the third quarter, the largest quarterly drop on records dating back to 1947. The government’s initial estimate had showed a record 8.7 percent decline in disposable income for the quarter." Americans have slashed their spending "in the third quarter at a 3.7 percent pace. That was deeper than the 3.1 percent cut initially reported and marked the biggest reduction since the second quarter of 1980, when the country was in the grip of recession." Consumer spending accounts for two-thirds of the U.S. economy. If American consumers are not spending, then retailers are slashing prices on their current inventory just to get the products off their store shelves, and will be both cutting back on purchasing new stock and laying off workers. Manufacturing and production of goods will also probably be cut back, with more layoffs, forcing even more unemployed Americans to cut back on their spending. And at the same time, we have a situation where Americans are saddled with so much home mortgage and credit card debt--debt that will need to be paid off, or will end up being defaulted, saddling banks with even more losses as unemployed Americans fail to pay off their debt. We're still not out of the woods yet.
Consumer confidence rises in November: I know that there is plenty of bad economic news to report, but here is some good news to chew on. According to this MSNBC News story, the Consumer Confidence Index now stands at 44.9, moving up from a revised 38.8 in October. "Economists surveyed by Thomson Reuters expected the November reading to slip to 37.9. Still, the November figure is about half of what it was a year ago, and hovers around levels not seen since December 1974, when the index was 43.2." My guess here is that consumer confidence had risen slightly because of lower gas prices;
Gasoline prices nationwide continued to decline, falling 2.3 cents overnight to $1.885, their lowest levels since September 2004 when the average price for three days was $1.886, according to auto club AAA, the Oil Price Information Service and Wright Express. The current price is $1.20 below where it was a year ago and down $2.225 from the peak in July when prices hit $4.11 per gallon.
Gas prices have been falling since around early September. When you find that the cost of filling your tank is chopped in half, from around $4.00 a gallon to $2.00 a gallon, that does provide a little relief to your pocketbook, and probably gives a little bit of a confidence boost. The Consumer Confidence number will probably hover at around the 44-45 range for the rest of the year, considering the continuing bad economic news, falling home prices, unemployment news and such.
Home prices tumble to 2004 levels: I'm really not surprised about this MSNBC News story;
WASHINGTON - Nationwide sales of existing homes fell more than expected last month, as economic fears made buyers leery even though prices plunged to the lowest level in more than four years. And the decline is expected to get worse because October's results reflect sales contracts signed before Wall Street's nosedive.
The National Association of Realtors said Monday that sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September. Sales had been expected to fall to a rate of 5.05 million, according to economists surveyed by Thomson Reuters.
The median sales price plunged 11.3 percent from a year ago to $183,000. That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004.
We still have a lot of subprime mortgage crap out there, where Americans are struggling to pay higher mortgage prices due to adjustable-rate mortgages. Banks have been refusing to refinance the subprime stuff because they get higher interest payments on these mortgages to improve their own troubled balance sheets. Unfortunately, the Americans who can't pay off their higher mortgages end up foreclosing on their homes, sending those same over-valued homes back to the banks, which can't sell them to cover their own losses. The MSNBC story reports that there are 4.23 million unsold homes on the market in October, which would take 10.2 months to sell all the homes at the current sales pace. Thus, we still have an almost year's supply of housing on the market. And the housing prices are now falling.
U.S. retail sales struggle in early November: The Christmas shopping season will be a red Christmas for retailers. From MSNBC News;
The results from SpendingPulse provide an early look into the strength of the crucial U.S. holiday sales season, which traditionally begins on the day after Thanksgiving. This year, the major holiday sales period begins on Friday, November 28.
Analysts are predicting the worst holiday sales season in nearly two decades.
Overall apparel sales are down 19 percent from the same period a year ago, according to a report by SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide. Apparel sales fell 5.5 percent in September and 12.2 percent in October.
Women's apparel fell 19.7 percent in the first half of November compared with last year, with men's apparel down 20.5 percent.
Footwear sales fell 11 percent, and electronics and appliance sales dropped a steep 22.1 percent, according to the report. Total luxury sales, which includes jewelry and high-end luxury stores, fell 21.1 percent.
Internet sales showed the most modest decline of the period, at 7.5 percent.
SpendingPulse's report includes sales from November 1 to November 15 and comes on the heels of dismal October sales, as consumers focused on essential purchases as the global financial crisis deepened.
"It's still very, very challenging. We've been seeing a deteriorating retail environment for some time, but in the last 10 days of October things started to deteriorate rapidly. That's continuing in November," said Michael McNamara, vice president of SpendingPulse.
Sales were better in the second week of November than the first, as consumers previously distracted by the U.S. election returned to the stores and gasoline prices eased.
I've been looking at the malls, and I'm seeing a lot of retailers posting sales signs of 50 percent off merchandise over the past two weeks. And while Americans may be going to the malls, they are not carrying shopping bags. So retailers are cutting prices to entice Americans into the stores to buy, but Americans are holding back on Christmas purchasing as retailers continue to cut prices. Am I seeing the first signs of a deflationary spiral?
No comments:
Post a Comment