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accounts that lenders are writing off as uncollectable. Charge-offs generally travel in line with
unemployment which continues to increase with few signs of reversing course.
With consumer debt at historically very high levels and savings rates climbing, it is difficult to see how
spending will rebound in the next few quarters. The impact of this on GDP could be substantial as
consumption has accounted for about seven-tenths of GDP in recent years. With credit card companies
and banks left holding the bag with rapidly defaulting consumer credit accounts, we would expect the
availability of additional consumer credit to be somewhat more scarce going forward.
The one potential caveat to this analysis is rising inflation. If inflation begins to take hold then the
borrower has the advantage and presumably can more easily pay down the nominal debt. If a dollar
tomorrow is worth less than a dollar yesterday then debts become more manageable. This is not at all far
fetched as the money supply continues to expand, and the national deficit has hit $1T in the first nine
months of the fiscal year. No one knows when or if inflation will begin to take hold, but it appears that the
interim could be painful with consumers maxed out and the economy in contraction.
Original Article
unemployment which continues to increase with few signs of reversing course.
With consumer debt at historically very high levels and savings rates climbing, it is difficult to see how
spending will rebound in the next few quarters. The impact of this on GDP could be substantial as
consumption has accounted for about seven-tenths of GDP in recent years. With credit card companies
and banks left holding the bag with rapidly defaulting consumer credit accounts, we would expect the
availability of additional consumer credit to be somewhat more scarce going forward.
The one potential caveat to this analysis is rising inflation. If inflation begins to take hold then the
borrower has the advantage and presumably can more easily pay down the nominal debt. If a dollar
tomorrow is worth less than a dollar yesterday then debts become more manageable. This is not at all far
fetched as the money supply continues to expand, and the national deficit has hit $1T in the first nine
months of the fiscal year. No one knows when or if inflation will begin to take hold, but it appears that the
interim could be painful with consumers maxed out and the economy in contraction.
Original Article
| Consumer Led Recovery? Not Yet. by Ockham Research, July 16, 2009 |
The following chart was provided by Buisness Insider’s Clusterstock
Chart of the Day, and it suggests that the hopes of a consumer driven
recovery are facing an uphill battle. Furthermore, even though
American Express (AXP) got a lift today with better than a month ago
charge off rates, they were still quite high at 9.9%. Charge offs are
Chart of the Day, and it suggests that the hopes of a consumer driven
recovery are facing an uphill battle. Furthermore, even though
American Express (AXP) got a lift today with better than a month ago
charge off rates, they were still quite high at 9.9%. Charge offs are
| Ockham Research is an independent equity research provider that provides a full suite of investment research products for individuals at just $1 per month. View Ockham's Blog. Read Ockham's Bio. |
|
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