Figures from Citigroup suggest that US consumers are in a mood to spend up a bit this festive season, which starts tonight, a day after Thanksgiving.
But more realistic analysts wonder if this in fact be the worst season in 22 years.
Citi reckons the worst year was 2007 when the rise in festive season sales in America’s shops was 0.7% from the day after Thanksgiving to the close of trade Christmas Eve.
That’s only a year ago, and 1.2 million more people are out of work and millions more have either left the workforce, or are on short hours and shorter working weeks.
Citigroup reckons sales will rise by up to 1% this year, which seems to be a bit optimistic.
Besides the battered state consumers find themselves in compared to a year ago, the overall US economy is unhealthier. Growth in the December quarter a year ago was marginally negative.
This quarter it could be sharply down by up to 5% according to an estimate from Goldman Sachs this week.
Despite Citi’s optimism, it’s hard to see how US consumers will rouse their animal spirits and go shopping: not with house prices at four year lows, new and existing home sales at multi-year lows, retail sales slumping, car sales down 32% and at multi-year lows and consumer confidence at near record lows.
On top of this, more than half a million people have been registering for unemployment benefits in each of the past four weeks. So it’s hardly the sort of season to make consumers jolly and want to spend.
Consumer credit is in short supply as lenders cut credit cards and home equity limits.
The severe impact of the credit crunch on US households and businesses was again shown this week with the latest figures showing yet another slump in new home sales, consumer spending and orders for durable goods in October (AKA The Black Hole).
Sales of newly built US single-family homes dropped last month to levels last seen more than 17 years ago, according to data from the US Commerce Department.
Third quarter US growth contracted by the biggest amount since 2001 (0.5%) but those figures for October suggest that growth this quarter will sink 4%-5% (annual rate), which would be the worst for a decade or more.
US consumer spending dropped 1.0% in October, larger than expected. But it shouldn’t have been after car sales plunged 32% in the month and retail sales a record 2.8%.
The Commerce Department figures showed the sharp drop in spending came even as incomes rose 0.3% in the month and inflation eased
But the news got worse: the Commerce Department also reported that orders for big-ticket durable goods fell a huge 6.2% in October, without a strike or hurricane to blame, as there was for August’s big drop.
That’s bad news for US manufacturing and for exports, the one part of the economy still showing life.
The drop in durable goods, such as planes, automobiles and refrigerators, was sharper than the 2.5% cut forecast by the market.
Orders fell faster than sales, which means there will be more pressure on employment early in the new year.
A separate report said 529,000 new claims for unemployment benefits were made; down some 13,000 on the figure for the previous week, but the fourth week in a row that more than half a million claims have been made for the first time, a chilling statistic.
The day before the second reading on third quarter growth was worse than expected: it shrank 0.5% compared with the first estimate of -0.3%.
Overall spending by consumers plunged by nearly $US80 billion, or 3.7%, the biggest percentage drop in 28 years. (The drop in retail sales alone was 2.8%).
Next week we will get the car sales figures for November and they won’t be pretty either.
But it wasn’t just falling consumer spending that weakened the US economy in the September quarter. Business equipment spending fell a nasty 5.7% while investment in housing continued to fall, this time down by 17.6%.
The US Treasury Department and Federal Reserve announced a new $US200 billion program to make more money available for consumer loans, such as credit cards, auto loans and student borrowing.
The Fed also upped the ante in spending to support the frozen home loan market by announcing additional $US600 billion to buy mortgage-backed securities in an effort to lower mortgage rates and support home purchases and prices.
It seemed to work because a day later mortgage rates fell sharply, down by 0.25% and more and well under 6% and US 10 year bond yield dropped below 3%.
That was the first significant fall in mortgage rates since the Government and Fed started trying to drive them lower. A small glimmer of light for 2009?
The US Federal Reserve has now tossed around $US7 trillion at the credit crunch, mostly in the US, to try and stop the economy from being consumed by the credit freeze.
That’s not money all spent, much of it won’t be. It’s ‘credit lines’ and revolving facilities for banks and the commercial paper market for instance and will be repaid and then re-lent again. But the estimate indicates the unprecedented size of the problem.
Some of the US money has been lent around the world in currency swaps and loans and will come back, but that too is an indicator of the seriousness of the economic problems the globe confronts, not just the US.
But America is where the black hole is biggest and where the threat to economic stability is the greatest: that $US7 trillion is equal to around 40% or so of America’s current yearly GDP, which is well
