Posted by Ed Cotton
The New York Times site traffic, US, June 25, 2009 from Nick Bilton on Vimeo.
Posted by Ed Cotton
Here's a quote from a testimony he gave to congress yesterday.
"However, the financial and economic recovery still faces significant headwinds. Unemployment remains high, along with foreclosure and delinquency rates. Although RealtyTrac's October report shows a third straight month of decreasing foreclosure activity, foreclosures are still up nearly 19 percent since October 2008. And delinquencies of subprime residential mortgages reached over 26 percent and conforming mortgages nearly seven percent in the third quarter. Further, according to First American CoreLogic, roughly one in four homeowners owed more on their mortgages than the properties were worth in the third quarter of 2009. These conditions place enormous pressure on American families and homeowners.
Bank lending continues to contract overall, although the pace of contraction has moderated and some categories of lending are growing again. For example, commercial and industrial loans contracted at an annual rate of 27 percent in the third quarter, but 16 percent since then. Such loans are particularly important for small businesses, which generally cannot raise money by issuing debt in securities markets. Meanwhile, residential mortgage loans from banks have increased at an annual rate of two percent since the third quarter.
The contraction in many categories of bank lending reflects a combination of persistent weak demand for credit and tight lending standards at the banks, amidst mounting bank failures and commercial mortgage losses. There have been 130 bank failures this year, compared with 41 over the decade that preceded the current recession. And the number of banks that the FDIC classifies as "problem institutions" has reached over 550 this year, compared with 76 in 2007 and 252 in 2008. Further, FDIC-insured commercial banks reported that net charge-offs--that is, losses that have occurred--increased to 2.9 percent as a share of loans and leases in the third quarter, up from 0.6 percent before the recession. And delinquencies of commercial real estate loans were nine percent in the third quarter and increasing.
Banks' willingness to lend also has a significant impact on consumer spending and, consequently, economic growth. Macroeconomic Advisors, a consulting firm, found that a 10-point increase in bank's willingness to make consumer installment loans yields a 0.3 percentage point increase in personal consumption expenditures."
So, what's he saying...
- Foreclosures are still around and bigger than they were in 2008, but activity is decreasing.
- A quarter of all homeowners owe more on their property than their property is worth.
- Mortgage loans are growing, but banks are not lending to business.
- Banks are still in trouble- 130 bank failures this year and 550 classified as "problem institutions".
While many are talking about recovery, these factors which don't even examine unemployment, suggest this is going to take time.
Posted by Ed Cotton
"As people try to rebuild their nest eggs, the savings rate is bound to remain higher than it was a few years ago. And what we spend our money on will change, too; housing costs, which were the central cause of the rise in Americans’ indebtedness in recent years, should eat up less of our budgets in the future. But the evidence for a radical shift in the way we consume seems more like the product of wishful thinking (there’s a palpable longing among pundits for Americans to become more frugal) than anything else. In many categories, spending has dropped only slightly, if at all. And, while these are very tough times for retailers who believed that spending could only go up, retail sales rose briskly in August. Before we go proclaiming this the age of the American tightwad, a little perspective is in order. Even after the worst recession of the past seventy years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?"
I don't believe this is a binary equation, some people will have to become more frugal, others with more confidence and means will certainly get back to spending. The challenge is to understand who these different groups are.
Posted by Ed Cotton
(1) "If American households have been forced to debt-finance spending on necessities, and if debt financing is unlikely to be as cheap or available in the future as it was in the recent past, then households will either have to find ways to reduce the costs of housing, transportation, health care, child care, and so on, or consume less, or work more. None of those options are likely to be comfortable. Americans have often been described as "living beyond their means", but I don't think most people realised that that unaffordable life primarily meant unsustainable access to basic necessities."
The suggestion is that there is unlikely to be a return to normality and for many Americans, any spending beyond the basic necessities, is going to be scrutinized and analyzed with rigor.
Posted by Ed Cotton
Americans have not really started saving yet, at least when compared to other periods of recession.Posted by Ed Cotton