Thursday, November 15, 2007

Consumer Spending's In Trouble

Is it still possible to avoid a recession if two thirds of the economy just stops spending?

Consumer spending accounts for two thirds of the economy and there is ample evidence that discretionary spending is grinding to a halt. Why should that be a surprise with foreclosures at an all time high, oil prices at an all time high, consumer debt at an all time high and consumer confidence in the toilet. It would be surprise if people kept spending under these conditions.
The guessing game ended this week - consumer spending is slowing down as J.C. Penney became the latest retailer to confirm the trend.

"We're in a very difficult selling environment," J.C. Penney CEO Myron Ullman told analysts Thursday in a conference call to discuss the company's third-quarter results.

"We came out of September expecting a strong start for early fall. That didn't happen. This is the first time that we're seeing a real change in consumer sentiment," Ullman said.

Penney isn't the only one to be disappointed. Earlier this week, Home Depot and Wal-Mart both signaled their concern about a spending slowdown in the months ahead and into 2008. Penney's rival Macy's cut its fourth-quarter same-store sales estimate Wednesday.
The smell of recession is in the air and there will be even more economic pain ahead for the lower and middle classes. Maybe if we are real lucky, those at the top will allow a bit more to trickle down. George H.W. Bush was correct when he called it Voodoo economics, too bad his moronic son didn't have the same sense.

Wednesday, November 14, 2007

Foreclosures Still Going Strong

With reports like this you have to wonder where the bottom is in this housing market?
Three states, California, Florida and Ohio, continue to dominate new foreclosure filings, as most of the nation saw increases in the third quarter, according to a new survey.

During the period ended Sept. 30, 77 out of the nation's 100 largest metropolitan areas reported rises in delinquencies compared with the previous three months, according to the latest report from RealtyTrac, an online marketer of foreclosure properties.

The three most affected states reveal the two main causes of mortgage payment problems: economic weakness, as exemplified by Ohio, and speculative excess that led to high home prices and unaffordable mortgages, as represented by California and Florida.
With states like Ohio and Michigan firmly entrenched at the top of the foreclosure lists you begin to realize that its as much economic weakness as it is the subprime mortgage mess. Our manufacturing base is gone and reports like this solidify that fact.
In the past few months, the foreclosure story has become a tale of two regions. Some of the hardest-hit states have traditionally been in the Midwest, where plant closings and job losses have hit the economy there hard.

The other region is the Sun Belt, which is showing even more significant foreclosure growth as out-sized price increases in the first half of the decade led to virtually unchecked real estate speculation.

According to the Center for Responsible Lending, 7.2 million households have subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes.
This report only makes my prediction of a recession stronger. The Federal Reserve will do all it can to ward off recession until at least the next administration takes office. I feel sorry for the next President. The mess they are inheriting will be monumental.

Monday, November 12, 2007