Mish's Global Economic Trend Analysis

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• Deflationary Trends in Consumer Credit
• More Nannycrat Insanity: EU Wants to Ban Youth Unemployment
• ISM Manufacturing in Contraction; Expect Conditions to Worsen

Deflationary Trends in Consumer Credit Posted: 03 Dec 2012 10:45 PM PST A few charts from the New York Fed Quarterly Report on Household Debt and Credit will help put into perspective the deflationary forces facing the Fed. Household Debt and Credit Developments in 2012 Q3 Aggregate consumer debt fell again in the third quarter, by $74 billion, continuing the nearly four-year downward trend in household debt. As of September 30, 2012, total consumer indebtedness was $11.31 trillion, 0.7% lower than its level in the second quarter of 2012 and down $1.37 trillion from the 2008 Q3 peak. Mortgages, the largest component of household debt, continue to drive the decline in overall indebtedness. Mortgage balances shown on consumer credit reports continued to drop, and now stand at $8.03 trillion, a 1.5% decrease from the level in 2012 Q2. Home equity lines of credit (HELOC) balances dropped by $16 billion (2.7%). Non-mortgage household debt balances jumped by 2.3% in the third quarter to $2.7 trillion, boosted by increases of $18 billion in auto loans, $42 billion in student loans, and $2 billion in credit card balances. Total Debt click on any chart for sharper image The deleveraging (deflationary) trend in consumer debt is unmistakable. Number of Loans There is certainly no jump in the demand for credit card, mortgage, auto, or home equity loans. Loan Delinquencies by Type Deleveraging of credit card and mortgage debt continues. Some deleveraging is via default. The rest is slow, steady debt reduction with reluctance to take on more debt.  The increase in student loans (and delinquencies as well) buck the deleveraging trend for two reasons Student debt is government guaranteed Student debt cannot be discharged in bankruptcy Guaranteed or not, students have no way to pay back their debt as real wages for college grads declines while tuition costs soar. Please see Trends in College Tuition vs. Bachelor's Degree Wages; Demographics of Student Loan Debt History for some very interesting as well as surprising charts on student debt demographics. Non-Mortgage Balances Auto loans have recovered a bit (primarily because cars eventually wear out). Yet, auto loan balances remain below the 2005 peak. The only item preventing a huge plunge in non-mortgage debt is student loans. The Fed has been fighting consumer deleveraging with round after round of QE but the above charts show it has not spurred consumer demand for credit. Those rounds of QE have, for now, put a bid on financial assets (stocks, bonds and commodities) but has done nothing positive for the real economy. More specifically, those rounds of QE have artificially lowered interest rates, destroying those on fixed income in the process. For a discussion as to how Fed policy is tantamount to outright theft for the benefit of banks and the wealthy, please see Hello Ben Bernanke, Meet "Stephanie". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

More Nannycrat Insanity: EU Wants to Ban Youth Unemployment Posted: 03 Dec 2012 12:42 PM PST Youth unemployment is shockingly high in Greece, Spain, and Italy as shown by Europe's Most Tragic Graph by The Atlantic. Young workers in Greece and Spain are facing an absolutely egregious work drought, where half of high-school and college-graduates ready to find a job aren't finding one. And 55% isn't the ceiling. Both economies are shrinking and unemployment is a lagging indicator -- as Americans have learned, the rate can keep going up after an economy technically starts growing. This economic tragedy can easily become a social disaster as young promising people either leave their country to work somewhere else or else turn to illegal or violent activities to protest policies wrecking their economies or lash out against a country that's leaving them behind. EU Wants to Ban Youth Unemployment Looking for a reason for the rise of the neo-Nazis in Greece? Look no further than economic depression and over 50% youth unemployment. So what to do about it? Courtesy of Google translate from German of Frankfurter Allgemeine, please consider EU Wants to Ban Youth Unemployment. The European Commission wants to oblige EU countries to all people under 25 to secure a job. How states are to implement the guarantee, it will not betray. The Member States of the European Union should guarantee all people aged less than 25 years in the future, within four months some form of employment. These governments should issue a so-called youth guarantee, as stated in a regulatory package that wants the department responsible Commissioner László Andor imagine this Wednesday in Brussels. Economic Idiocy It would be nice if the economic illiterates in the nannyzone would stop and figure out why youth unemployment is so high. The primary answer is work rules, pension rules, and other rules are so harsh that companies simply do not want to hire workers. France is heading down the same idiotic path with an economically insane proposal by French president Francois Hollande "Make Layoffs So Expensive For Companies That It's Not Worth It" Any clear-thinking person should quickly realize that if companies cannot fire workers they will be extremely reluctant to hire them in the first place. Thus, it should be no surprise to discover French Unemployment Highest in 14 Years (And It's Going to Get Much Worse). Moreover, Italy, Spain, France, and Greece are already suffering from massive public sectors. Those sectors need to shrink, not expand. In France, Government spending amounts to 55% of total domestic output. For discussion, please see Hollande's Honeymoon is Over; 54% of Voters Unhappy; Unions Promise "War" in September. Now the nannycrats want government to take over still more of total output instead of shrinking it, at a time when every country in the EU is struggling to reduce deficits. Insanity does not begin to describe the stupidity of this proposal, which I might add (the EU offers no way to implement in the first place). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

ISM Manufacturing in Contraction; Expect Conditions to Worsen Posted: 03 Dec 2012 10:37 AM PST US Manufacturing as measure by the November 2012 Manufacturing ISM Report On Business® is back in contraction. The PMI™ registered 49.5 percent, a decrease of 2.2 percentage points from October's reading of 51.7 percent, indicating contraction in manufacturing for the fourth time in the last six months. This month's PMI™ reading reflects the lowest level since July 2009 when the PMI™ registered 49.2 percent. Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved. ISM at a Glance Series Data Nov Index Oct Index Percentage Point Change Direction Rate of Change Trend (Months) PMI™ 49.5 51.7 -2.2 Contracting From Growing 1 New Orders 50.3 54.2 -3.9 Growing Slower 3 Production 53.7 52.4 1.3 Growing Faster 2 Employment 48.4 52.1 -3.7 Contracting From Growing 1 Supplier Deliveries 50.3 49.6 0.7 Slowing From Faster 1 Inventories 45 50 -5 Contracting From Unchanged 1 Customers' Inventories 42.5 49 -6.5 Too Low Faster 12 Prices 52.5 55 -2.5 Increasing Slower 4 Backlog of Orders 41 41.5 -0.5 Contracting Faster 8 Exports 47 48 -1 Contracting Faster 6 Imports 48 47.5 0.5 Contracting Slower 4 Expect Conditions to Worsen It's tough to pin this slowdown on hurricane Sandy although I suspect some will try. Others will blame the "fiscal cliff" but that theory does not have much credence either. After all, this is the 4th contraction in six months, long before Hurricane Sandy or fiscal cliff worries. Instead, I propose global QE in the US, China, and Europe has finally played out for all that it's worth and then some. Note that export orders have contracted every month for six months, and the backlog of orders every month for 8 months. Eventually, employment had to catch up with those trends and it did. Employment fell 3.7 percentage points to 48.4. Production is up 1.3 percentage points but with new orders and exports slowing rapidly, don't expect that to last. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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