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...If the dots don't connect, gather more dots until they do...




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Tuesday, May 07, 2013

Tuesday's Decline in Consumer Habits and Optimism -- (Would the Fed ever back-stop consumer loan defaults?)

Data released today (Tuesday) shows a drop in Week-to-week and Year-to-year Store Sales, as shown below...we'll see if this weakness persists in the weeks ahead.

Further data today also showed a drop in Consumer Economic Optimism and in Consumer Credit, as shown on the graphs below.

It's interesting to note that consumers have been borrowing at a higher value level in 2012 and 2013 than they were in the years leading up to the financial crisis. Any increase in loan rates from the banks could lead to defaults and pose a problem for those institutions. If the amount of loans continues to decrease, we may see banks raise rates to compensate for any losses that may be incurred in revenues...that could then spawn such defaults.

Not that the markets are paying attention to weak economic data anyway...but am mentioning this nonetheless.

***UPDATE May 9, 2013: Data released today shows a rise in Mortgage Delinquencies, as shown on the graph below...evidence that banks are already struggling with consumer defaults...if the above scenario were to play out, the banks would have added stress.

The Fed certainly has its hands full with its current Mortgage-Backed Securities Purchase Program. No doubt, if the Fed weren't backing the banks on this matter, we wouldn't see house prices rising. The question then becomes, would the Fed begin to back consumer loan defaults if that became a problem? Where does it all end?

Furthermore, data released today shows that Wholesale Inventories rose, as shown on the graph below...confirming the above consumer data.