Wednesday, August 18, 2010

Household Debt Down As Deleveraging Will Continue

The New York Fed is out with their quarterly report on Household Credit Conditions in the US.

I have posted before on the deleveraging theme.

The NY Fed's report shows that households steadily reduced aggregate consumer indebtedness over the past 7 quarters. In the second quarter of 2010, they owed 6.4% less than they did in 2008, the peak year for indebtedness. More importantly, for the first time since early 2006, the share of total household debt in some stage of delinquency declined, from 11.9% to 11.2%. The number of people with a new bankruptcy noted on their credit reports rose 34% during the 2nd quarter, this is considerably higher than the 20% increase typical of the 2nd quarter in recent years.

Roughly 2/3rd's of GDP is consumer spending. Walmart yesterday continued its trend of negative same store sales for the fifth quarter in a row and warned that current quarter trends are also negative. Home Depot as well as Walmart cut their sales forecasts but raised their profit forecasts, thus rallying the stocks. This is 100% cost cutting, a trend that is getting gray in the tooth. Where is the demand? Where is the consumer?

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