May 11, 2009

Economic Outlook: Consumers lag

Numbers that looked scary a year ago, like April's job losses, are now fueling hope investors will soon replace the word rebound with the word recovery.

April's non-farm job losses came in at 539,000 Friday and are nothing to cheer about until you compare them to March when nearly 700,000 jobs were lost. Suddenly, the trend looks positive, even as the unemployment rate jumped from 8.5 percent to 8.9 percent and is predicted to go higher still.

The aggregate numbers are in focus now. There have been 5.7 million jobs lost since the recession began in December 2007. In all likelihood, that means millions of families have yet to think about a rebound, let alone a recovery, a factor that impacts General Motors Corp., Chrysler, Ford and Dell, which require customers to make a recovery real.

The bank stress test results, released Thursday, demonstrate the problem well. In one of the hypothetical worst case scenarios the U.S. Treasury projected to test banks' ability to hold up if the economy weakens, it was presumed the 19 largest banks in the country would lose $82.4 billion in credit card accounts by the end of 2010, The New York Times reported Monday.

But, that tests' worst case scenario maybe too tame if the traditional link between job losses and credit card defaults holds up, the Times said.

Management consulting firm Oliver Wyman projects a potential loss in credit cards of $141.5 billion for the nation's 19 largest banks by the end of 2010 and a loss of $186 billion for the credit card industry as a whole.

With $15,000 to $20,000 in credit card debt, laid off warehouse worker Eddie Ward in Arkansas, said he has not made minimum payments since he lost his job. Falling behind after losing a job that was not likely to promote much in savings in the first place, Ward told the Times his accounts were in trouble, unless I win the lottery.

In addition, Treasury's hypothetical scenario on unemployment is closer to reality than fantasy, suggesting banks may have to write off more than the 6.3 percent in credit card accounts they were writing off by the end of 2008.

Markets in Asia were mostly lower Monday. The Nikkei 225 average in Japan held onto a slim 0.2 percent gain, while the Hang Seng index in Hong Kong dropped 1.74 percent. The Singapore Straits Times dropped 3.22 percent, while the Kospi index in South Korea rose 0.21 percent. The S&P/ASX in Australia fell 0.4 percent.

In midday trading, Europe turned in consistent gains. The FTSE 100 in London was up 1.44 percent. The DAX 30 in Frankfurt rose 2.29 percent. The CAC 40 in Paris was up 1.88 percent. The broader DJStoxx 600 rose 1.56 percent.

After two months of better figures here and abroad, it might be said in investment-speak: Markets show signs of health, but consumers lag behind.