consumer contraction

[jk]

charts from contraryinvestor.com

consumer loan demand



consumer mortgage demand




"the banks have not tightened standards for consumer mortgage lending. Remember, restrictive OCC guidelines regarding bank mortgage lending have yet to be implemented as of the latest Bank Officer Survey. For now, the banks remain about as lax in terms of credit standards for consumer mortgages as any time over the last decade and one half. And, of course, the tell is that housing in general continues to weaken despite there really being no credit crunch of substance. In other words, it’s a death by ice (lack of demand) as opposed to fire (credit crunch)." contraryinvestor.com

[Jim Nickerson]

Re: consumer contraction

Not to worry, jk, we are headed toward a soft landing.

IRWIN KELLNER
Cheap thrill
Drop in gas prices signals economy may hit a soft landing.

http://www.marketwatch.com/News/Stor...o&dist=myyahoo

[Finster]

Re: consumer contraction

consumer contraction ... [falling] consumer loan demand ...

Considering that the main problem has been consumption in excess of production facilitated by artifical credit, that is good news.

[SeanO]

Re: consumer contraction

"the banks have not tightened standards for consumer mortgage lending. Remember, restrictive OCC guidelines regarding bank mortgage lending have yet to be implemented as of the latest Bank Officer Survey. For now, the banks remain about as lax in terms of credit standards for consumer mortgages as any time over the last decade and one half. And, of course, the tell is that housing in general continues to weaken despite there really being no credit crunch of substance. In other words, it’s a death by ice (lack of demand) as opposed to fire (credit crunch)." contraryinvestor.com

While I think it may be true that banks haven't tightened mortgage standards, they certainly have been tightening in practice. At least in CA almost every residential escrow is being delayed due to review appraisals, secondary credit and income reviews, and other lender conditions that just weren't present a year ago. I think that this may be too little, too late, but still a good trend.

[bart]

Re: consumer contraction

Here's another view of how easy credit is. There has been plenty of reserves available at the banks for borrowing by any public during the entire period of the chart, regardless of the level of interest rates. The only exceptions are a pump right after 9/11 and right around the start of the Middle East *adventure*.




This is also one of my favorite sources to check for changes in credit standards. Its a loan officer survey here at BullAndfBear but does lag 30-60 days.

[Spartacus]

What happened to healthy retrenchment?

Also known as the idea that much of the mortgage volume was net-beneficial to consumers as a lot of credit card debt was being retired and rolled into mortgages?

I can't read anything in these charts to support that idea.

[Finster]

Re: consumer contraction

Here's another view of how easy credit is. There has been plenty of reserves available at the banks for borrowing by any public during the entire period of the chart, regardless of the level of interest rates. The only exceptions are a pump right after 9/11 and right around the start of the Middle East *adventure*.

...

This is also one of my favorite sources to check for changes in credit standards. Its a loan officer survey here at BullAndfBear but does lag 30-60 days.

Can you put this in a longer term perspective? Based on the period shown on the chart, credit availability is about normal. But were the last six years "normal"?

[bart]

Re: consumer contraction

Can you put this in a longer term perspective? Based on the period shown on the chart, credit availability is about normal. But were the last six years "normal"?

Here you go - you can clearly see the 1995-2000 Greenspan pumping operation that EJ observed in that other thread, as well as a smaller one starting in 1982-3.



More loan officer survey data back to 1990 and through 2001 is available here.

[Finster]

Re: consumer contraction

Here you go - you can clearly see the 1995-2000 Greenspan pumping operation that EJ observed in that other thread, as well as a smaller one starting in 1982-3.

...

More loan officer survey data back to 1990 and through 2001 is available here.

Wow.

Can trees grow to the sky?

Is it noteworthy that the tessitura of this series has been in a multi-decade increase? Can it expand without bound, or should it be expected to be mean-reverting over time?

[bart]

Re: consumer contraction

Wow.

Can trees grow to the sky?

Is it noteworthy that the tessitura of this series has been in a multi-decade increase? Can it expand without bound, or should it be expected to be mean-reverting over time?

Some day you'll ask me an easy one...

Considering that the main driving force for its increase has been the lowering of reserve requirements on bank accounts, and that all but the largest accounts have reserve requirements that are very low and frequently zero - I don't think it can grow much more than another doubling at most from here.

I'd think at some point reserve requirements would have to go up but the chances that would be coincident with some kind of crisis or crises are pretty high.

But I'm not really an economist - I only play one on forums and my web site. ;)




Extra points for making me look up tessitura too. ("The prevailing range of a vocal or instrumental part, within which most of the tones lie.")

[Finster]

Re: consumer contraction

Some day you'll ask me an easy one...

Considering that the main driving force for its increase has been the lowering of reserve requirements on bank accounts, and that all but the largest accounts have reserve requirements that are very low and frequently zero - I don't think it can grow much more than another doubling at most from here.

I'd think at some point reserve requirements would have to go up but the chances that would be coincident with some kind of crisis or crises are pretty high.

But I'm not really an economist - I only play one on forums and my web site. ;)




Extra points for making me look up tessitura too. ("The prevailing range of a vocal or instrumental part, within which most of the tones lie.")

Perhaps they figure reserve requirements are obsolete. The Fed can pretty much monetize the debt of any institution, can't it? So if a bunch of depositors all show up at a bank wanting their money and the bank doesn't have enough, isn't it just a matter of a few keystrokes to "correct" the problem?

[bart]

Re: consumer contraction

Perhaps they figure reserve requirements are obsolete. The Fed can pretty much monetize the debt of any institution, can't it? So if a bunch of depositors all show up at a bank wanting their money and the bank doesn't have enough, isn't it just a matter of a few keystrokes to "correct" the problem?

Yes - pretty much. I think both the FDIC and FSLIC have less than 1% reserves.

Here's the actual current reserve requirements:

$0 to $7.8 million 0%
More than $7.8 million to $48.3 million 3%
More than $48.3 million 10%
Nonpersonal time deposits 0
Eurocurrency liabilities 0


from http://www.federalreserve.gov/moneta...reservereq.htm

[jk]

Re: consumer contraction

---

September 3, 2006
Borrowers We Be

By STEVEN GREENHOUSE
WITH their raises often lower than the inflation rate, millions of Americans have embraced the same strategy to maintain their living standards — borrowing and then borrowing some more.

As a result, debt payments now consume 19.4 percent of the income of the average American family, and 23 percent of the families in the bottom two-fifths of families by income devote at least 40 percent of their income to debt payments. With debt burdens so high, some economists fear a new wave of foreclosure and personal bankruptcies now that interest rates have climbed.

“Real median incomes have gone nowhere, and for lower-income households real incomes have been falling,” said Mark M. Zandi, chief economist at Moody’s Economy.com. “If they want to maintain a certain level of spending, they have to take on more debt.”

Household debt rose to 132 percent of disposable income last year, partly because many Americans have pushed their credit card debt to the max and because many, including many high-income Americans, have piled on the mortgage debt. Last year, for the first time since the Depression, the personal savings rate for the nation fell below zero, meaning that Americans are spending more than they are earning (and are saving no money on a net basis).

“There are really two types of households out there,” Mr. Zandi said. “High-income households have balance sheets about as good as I’ve ever seen, while lower-income households have balance sheets about as bad as I’ve ever seen them — complete tatters. These households are on the financial edge, and if there’s any slight disruption, like a car breaking down, it can be a real disaster for them financially.” [emphasis added-jk]