Empty Plastic

While economists and the mainstream media tried hard to get everyone excited by today's "better-than-expected" employment report (which included an unusually large and likely-to-be-reversed spike in hiring in the "Couriers & Messengers" category), they failed to mention one thing: even if they're are a few more jobs around, that doesn't necessarily mean Americans are going to go out and start buying stuff.

For one thing, they have a lot of other obligations to take care of first.

As Card Hub CEO Odysseas Papadimitrioas seems to make clear in a CNBC Guest Blog post, "Break Out the Budgets, Study Reveals US Consumers Increasingly Overleveraged," U.S. consumers haven't made any real headway when it comes to paring down high debt loads and getting their financial houses in order.

During the third fiscal quarter of 2011, U.S. consumers added $17 billion in new credit card debt, wiping out what remained of a $33 billion first-quarter pay down and putting us on pace for a $64 billion net gain in credit card debt during 2011, according to a Card Hub study.

First-quarter debt pay downs are typical, as the first fiscal quarter of the year is when companies give out yearly salary bonuses, the IRS serves up tax refunds, and we’re still committed to New Year’s Resolutions. But in neither 2009 nor 2010 was a first-quarter pay down consumed entirely by the close of the year’s penultimate quarter. What’s more, according to the aforementioned study, the amount of new credit card debt incurred during Q3 2011 was 58 percent and 154 percent higher than what was added during Q3 2009 and Q3 2010, respectively.

These trends clearly display that overleveraging of unsecured credit cards is getting out of hand. This may not pose an immediate threat, but what happens if the European debt crisis sours and unemployment starts to go back up?

Indeed, a separate report from Reuters, "Holiday Hangover Means Slow 2012 Start for Stores," pretty much confirms that the only thing many people seem to have in their wallets nowadays is overused plastic, along with the receipts for things they can't afford (and the uncomfortably large balances they're carrying on their credit card accounts).

U.S. retailers are facing their biggest post-holiday depression since 2009 as consumers wary about the economic outlook cut back on spending to pay off credit card bills accumulated last month.

"The first and second quarters this year will see a deeper low than last year. Sales in the week after Christmas were so strong that took a bite from January," retail consultant Jan Kniffen told Reuters.

...

As shoppers felt more confident about their finances and shopped more online, credit card usage rose after three years of major cutbacks in credit card use, a study by the America's Research Group showed.

"January post-holiday sales are expected to plunge to some of the lowest levels in years, thanks to a surge in credit card spending over the Christmas season," said America's Research Group Chairman Britt Beemer.

Beemer said credit card usage this year was up around 25 percent over last year.

"Now that those credit card bills are hitting mailboxes," shoppers will cut back in a very significant way relative to January and February of the last few years," Beemer said.

That said, the retailing sector was higher today, so I guess the "smart money" knows something we don't.

Or do they?

Comments

[Shuichi Seto]

Hi, Mr.Panzner,
I'm posting from a country of deflation.
I think you will have proven yourself a lot smarter than the "smart money" in the not too distant future.
I've read the Reuters article before going into your site earlier today.
What drew my attention and made my convictions stronger on Japanization of US economy, was a couple of paragraphs not mentioned in your comments:
"(Mr) Yarrow said consumers are less reactive to economic news than they have been in previous years. "It has to be sale merchandise, THINGS THAT MAKE PEOPLE FEEL THAT IT IS AN UNBEATABLE BARGAIN. In the headiest of economic times people still cut back in January and February ... and no matter how optimistic consumers feel THEY'VE BEEN TRAINED TO EXPECT JUICY DISCOUNTS. Barbara Smith, an out-of-work security person, was browsing through woolen scarves that were selling for around $9 at an Old Navy store. "I come here for the deals. THEY ALWAYS HAVE DISCOUNTS. I am done shopping for gifts, I'm now looking for some stuff for myself," Smith said. But most of the store had very few customers."
I haven't seen it firsthand so I may not in a position to say anything definitive, but the situation looks eerily familiar to that of Japan. If there are lots of Barbaras out there BUYING ONLY WHERE THERE ARE ALWAYS DISCOUNTS or waiting till the prices drop to the rock bottom WHILE THEY CAN AFFORD TO BUY AT A STANDARD PRICE FROM THE OUTSET, then I think the US is indeed a block away from deflation, or put it in another way, too late to get back on track, because, at the end of the day, with or without jobs, it's the behaviour of the consumers which makes or breaks the economy.

[Tom]

Well, let's face it Shuichi, WITH jobs (esp. ones that pay a "living wage") the situation would improve more quickly and be at least a slowing of the descent to which economty you spoke so eloquently. As it is, with good jobs still vanishing to robots and off-shoring, and only piddly-paying "service sector" jobs left to replace them, this economy will become more and more bleak as the global collapse (in cheap energy as well as too many resources to name and a looming deteriorating climate situation) effects everyone.

The fact that all of our "living systems" of energy resources, plants and food production, ecology and economy are all interrelated tells me that we're about to get totally hammered in the coming years due to our continued pollution and degradation of all those systems just mentioned. From rampant fraud and the unbalanced distribution of wealth to heavy metals and pharmaceuticals showing up in water samples (not to mention the continuing radiation problem) to climate change making growing seasons unpredictable and chaotic - the human species, long thought to be "in the image and likeness of God" turns out to be too stupid to survive. We've become a cancer to our host planet and she will eradicate us in the harshest possible ways.

Maybe next time (a few dozen millenia from now) we'll have "learned".

[Rocky]

Mr. Seto: I'm your man. I used to consider myself a good shopper. The recession made me a better shopper. One of my better recent deals? A new duffel bag which I use as a gym bag. The bags were on display for months at $148 + tax. Before Christmas, the store marked them down and with a store newspaper coupon, I was able to buy the bag for $55.50 + tax. The manufacturer's web site still sells them at $148.00. I now check my local drug store's prices for vitamins and food supplement against Internet prices. If the drug store's prices are not close to Internet prices, I do my shopping on line. As far as I am concerned, Internet shopping is the best thing that has happened to consumers since stock exchange commissions were deregulated in 1975 or since airline ticket prices were deregulated in 1978, depending on your shopping preferences.

[RPY]

During the Christmas shopping season I saw of a lot plastic flashing around.. My thoughts were this not a sign of a recover, but a sign that some of the already debt ridden haven't yet come to that conclusion.

"I can still make that minimum payment, I am ok."

I am happy to say that I was not one of them. I have not used a credit/debt card in four years, for anything.
My family thinks I am a scrooge. "Merry Christmas I said to them and Happy debt free New Year for me!"

[The debt is killing us]

Liquidate the debt....listen

Ron Paul Highlights – ABC / WMUR NH Debate

http://sgtreport.com/2012/01/ron-paul-highlights-abc-wmur-nh-debate/

[Say the words: debt bubble]

(Noteworthy non-technical observations come through: As to the concern of Gold having experienced a bubble this year, Ian McAvity lends a wonderful statistical perspective: “At $1,900 Gold recently, it was 2.2x its early 1980 peak. US GDP & US Federal Debt are about 5.5x their early 1980 levels, while the S&P 500 and Total Credit Market Debt are at 11 ½ -to-12 times their early 1980 levels. The real bubble has been the issuance of debt that is increasingly stifling any real recovery in the Main Street economy.”)

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/9_Louise_Yamada_-_Gold_%26_Silver_Bulls_to_Continue_Stampede.html

[Without job growth how does the debt get repaid?]

The only reason unemployment rate has dropped recently is because BLS surveys say the number is negative (a shrinking labor force).

Based on historical data and Bernanke's estimates, one would have expected the unemployment rate to have risen during 2010 and peaked mid-2011. Instead, the unemployment rate fell from 10 to 8.5.

The Real Employment Situation...

The work force is literally one million smaller than during Bush's last year in office. This is statistically impossible, at least judging from historic trends.

Fundamental Case for Structurally High Unemployment

At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.
At the height of the housing bubble in 2005, the economy added 208,000 jobs a month.
At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 91,000 and 173,000 jobs per month depending on where you mark the peak.

Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution.

http://globaleconomicanalysis.blogspot.com/2012/01/fundamental-and-mathematical-case-for.html

[sharonsj]

Yup, Mish's global economic site has a bunch of charts showing that the job situation is worse than the happy talk media knows or will acknowledge. But all you have to do is look around at the closed stores, the empty malls, and the increase of buying at thrift shops and flea markets.

Unfortunately, none of the clowns in office, nor the clowns vying for the Republican nomination, will solve a single problem. Our system is too corrupt.

[The loot salute]

Maybe it should be bane?..this should help job growth..?

Romney’s Bain Capital Leadership Attacked as Exploiting Companies for Cash

For months, Mitt Romney has seldom been challenged on his claim that his leadership at Bain Capital LLC offers evidence that he knows how to create jobs. That has ended as his Republican rivals are accusing him of exploiting companies and firing workers in a quest to make millions.

“Those of us who believe in free markets and those of us who believe that, in fact, the whole goal of investment is entrepreneurship and job creation, would find it pretty hard to justify rich people figuring out clever, legal ways to loot out a company,” former U.S. House Speaker Newt Gingrich told reporters in Manchester, New Hampshire, yesterday, ahead of the state’s Jan. 10 presidential primary.

The trailer for the ad posted on a website calls Romney a “corporate raider” and says he’s akin to others on Wall Street motivated primarily by greed.

‘Corporate Mugger’

“Mitt Romney is not a capitalist,” Tyler said of the former private-equity executive and onetime Massachusetts governor. “He is a predatory corporate mugger. If you ever wonder why so many manufacturing jobs are overseas, you need to look no further than Mitt Romney. He can claim thousands of jobs created, only those jobs were created in Mexico and Southeast Asia.”

And onetime Utah Governor Jon Huntsman Jr., campaigning in New Hampshire today, described Romney as out of touch with “the economic realities.”

Dade Behring

A Bloomberg News review of several Bain deals during Romney’s tenure found that not all Bain’s investments were beneficial for workers. Several companies ran into trouble, laying off hundreds of workers, filing for bankruptcy, facing federal fines, or lawsuits from shareholders who said they were misled by management. One example was Dade Behring Inc., a Deerfield, Illinois-based medical-testing company, where Bain cut least 1,600 jobs after taking over the company.

The Wall Street Journal reported today that it looked at 77 businesses in which Bain invested during Romney’s time there to assess his record. It found that 22 percent of the companies either filed for bankruptcy or shut down by the eighth year after the Bain investment. The newspaper also found that Bain produced excellent returns for its investors, although most of the gains came from just 10 deals.



http://www.bloomberg.com/news/2012-01-09/romney-s-bain-capital-leadership-attacked-as-exploiting-companies-for-cash.html