|There is a consumer borrowing |
party going on
Today, the Federal Reserve reported that consumer borrowing took a surprisingly large jump of $18.8 billion in December to $3.1 trillion for the year.
Some argue that this is due to the Christmas season. Others claim that it is a good sign that the economy is improving. Both are wrong.
I will remind those who think that the jump is due to Christmas of the fact that 2012 also had one of those. The total last year was $2.9 trillion compared with the $3.1 trillion for 2013. So the substantial increase was not due to the holidays.
With regards to higher borrowing being a sign of confidence, I would say that it is possible but improbable. While spending could be a sign of consumer confidence, I would instead expect to find the initial signs of confidence among employers. But so far I see none.
|Nonfarm Productivity and Unit Labor Costs|
by Haver Analytics
The signs clearly point at a consumer who is using more credit cards not out of optimism but rather out of need. Consumers are rebuilding leverage again, but absent an economic boom this time. People are borrowing the money they don't have. If this assumption is correct, in a few months we will see unsecured-loan defaults rising. So be prepared just in case I am right and the extra spending isn't due to a better economy. In your shoes, I would not hold my breath.
I only wonder what it would take for people to remove the blinders. In 2006 I told anyone who would listen to skip buying a house. I told them all to sell their home instead and to rent one in the mean time. People thought it was a stupid idea.
Today, I see the same about the ineptitude of this White House. Here, Congress is not an excuse because they have always been trouble for any president. The variable this time is a president who has no clue of the social aspects of markets. He either does not understand what makes economies work or refuses to do the right thing. He is either incompetent or unethical; you chose. The fact is that there are not enough jobs being created. We need about 400K new jobs per month instead of the joke of a number we are getting.
The only reason for the low unemployment is the low participation. But here, the President argues that the low participation is due to Baby-boomers not seeking jobs. But this too does not match reality.
CNBC today, unemployment for those with college degrees remains about 4% higher than before the recession. So much for that spin.
In simple terms, the government's claim is just hiding the truth from naive citizens. I say naive because it seems clear to me that they wrongly elected the President because he sounded well while delivering empty speeches. If I had anyone of them read the speeches rather than hear Obama say them, they would think very differently of the message. So, let's just hope that this President does not take us so far into the hole that we can't recover later on.
The facts continue to contradict the White House's spin. While they can attempt to impress us with the best displays of curve-fitting by Nobel Prize economists, the fundamental reality continues to call attention to the fact that consumers are being squeezed, boomers are out of their jobs and employers are scared. Let's demand better leadership.