Consumer Borrowing Plummeting Fast
Wednesday, November 8th, 2006
By Michael Lombardi, MBA for Profit Confidential
What does this picture tell you about the state of the U.S. economy and the changing spending habits of consumers?
The U.S. Federal Reserve released a report yesterday stating consumer borrowing in the U.S. fell $1.2 billion in September–the biggest monthly decline since April, 1992. Loans for automobiles dropped the most, down by an annual rate of 3.2% in September.
In the same report, the Fed said borrowing on credit cards rose in September.
At this point in the economic cycle, consumers are obviously reducing their borrowing activities for big ticket items such as cars (we already know the homebuilders are hurting). Are consumers loading up their credit cards with smaller purchases or are their credit card balances remaining fat? No one really knows for sure.
But we do know this: American consumers are cutting back on spending. It could be higher interest rates… it could be the falling housing market putting the breaks on for most consumers… or maybe consumers are just tapped out. Whatever the reason, or combination of reasons, to account for consumer cutbacks on borrowing, I’ve never seen an economy expand when consumer buying is contracting.
Who came up with the concept that lower oil and energy prices would help consumers continue spending? I haven’t seen this idea come to fruition yet. Nor do I believe lower gas prices will make much of a difference on consumer spending.
Would I own a consumer good stock right now? Not me. I see 2007 as being a very difficult year for consumers and the economy. Now if someone can just tell me why the stock market sits near a record high?
Here’s a better question: Why isn’t the media picking up on the plummeting borrowing habits of American consumers? Oh, right, we are supposed to continue believing the economy is chugging along just fine… at least until Wall Street pays out that record $36 billion in bonuses this year.
Next Post: Reap What We’ve SowedPrevious Post: Death to Income Trusts; Or Is It Really!
Tags: interest rates, stock market, U.S. economy
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
