Economic News Through Rose-Colored Glasses
It is very hard to determine via headlines whether we are in an economic upswing or still heading toward the bottom. From the following news items, you decide:
Today a headline on Yahoo Finance read "Stocks Climb After Jobless Claims Fall," which made the stock market very happy. But looking further into the facts, jobless claims fell by only 14,000 for the week ending March 23 in large part because the Labor Department is now using revised seasonal factors. Without these revisions claims would have been 10,000 more totaling 453,000 and many economists were looking for jobless claims to fall to 450,000. Right now there are still 11.17 million people receiving some type of unemployment benefit (not seasonally adjusted). So is this really good news?
The Federal Reserve reported last week that revolving credit usage, which is primarily from credit cards, fell for the 16th consecutive month. However, this good news has a caveat, part of this usage decline is due to the fact that issuers are cutting credit limits on their cards to try to reduce the risk of delinquencies. In addition, from reports by six of the major credit card issuers, delinquency rates (for accounts that are at least 30 days late) and charge-off rates (loan losses that have been written off) are still very high. Bank of America's charge-off rates went from 13.25% in January to 13.51% in February. Citigroup's monthly delinquency rate increased from 5.75% in January to 5.94% in February. In 2009 the losses that U.S. banks took from loan charge-offs totaled $89 billion dollars. And four out of the six card issuers wrote off a larger percentage of their loans in February than in January.
Another big headline today was that Best Buy had great earnings numbers. Yes, the consumer is back buying stuff again! But if you delve more deeply into the release, part of that increase was a result of less competition due Circuit City filing for bankruptcy. Sales were up but profit margins were down. Another fact was that purchases of electronics for home office use accounted for 21% of the increase. People can't find work so they are trying to start home-based businesses. Some analysts are now saying that consumer electronics such as computers and phones aren't really discretionary items anymore, they are necessary purchases, and therefore not true indicators of people's ability to spend on entertainment.
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