Between the first quarter of 2012 and the second quarter of 2014, auto sales in the U.S. economy have increased 16%. (Source: Federal Reserve Bank of St. Louis web site, last accessed August 21, 2014.) And auto sales this year have been stellar, too. In July, auto sales reached the highest level since 2007 and are up eight percent from this past January. (Source: Motor Intelligence, last accessed August 21, 2014.)
As auto sales have risen, auto loans have increased as well. In the first quarter of 2012, auto loans amounted to $737 billion; now they are just short of $1.0 trillion. (Source: Federal Reserve Bank of New York web site, last accessed August 21, 2014.)
More auto sales, more auto loans; sounds right. But the problem is that more and more cars are being sold to individuals with bad credit scores.
Looking at it percentage-wise, the amount of auto loans to people with poor credit scores is much higher than to those with good credit scores. As an example, in the second quarter of 2014, $20.6 billion in new auto loans were issued to those with a credit score below 620. That’s an increase of 33% to this group from the first quarter of 2012.
Meanwhile, auto loans to those who have credit scores above 760, called super-prime customers, only increased 17% over the same period.
Now, here comes the kicker…
In the second quarter of 2014, 15.1% of all auto loans originated in the U.S. economy were delinquent for more than 30 days. That’s a 44% jump in auto loan delinquencies from the first quarter of 2012. … Read More
Wal-Mart Stores Inc. (NYSE/WMT) reported its operating income in its second quarter (ended July 31, 2014) declined by 2.4%. Its subsidiary, Sam’s Club (wholesale store), saw its operating income, after taking out fuel, decline by 10.2%. (Source: Wal-Mart Stores Inc., August 14, 2014.)
For its entire 2015 fiscal year, Wal-Mart now expects to earn in the range of $4.90 to $5.15 per share compared to its previous estimate of $5.10 to $5.45 per share.
The performance of Wal-Mart is very important to economists like me because the massive reach of Wal-Mart is a good indicator of consumer spending. Wal-Mart is the biggest private employer in the world, with a staff of approximately two million, and the largest retailer in the world. More than one hundred million people visit a Wal-Mart store weekly.
So when Wal-Mart comes out with soft earnings, it gives me a reason to be concerned about the direction of consumer spending. But that’s not the only thing I’m worried about in respect to the economy.
According to FactSet, of those major public retailers that have reported their second-quarter same-store sales, 46.8% of them have reported sales below estimates.
Retail sales are stagnant for the simple fact that consumer spending is getting very soft here in the fifth year of the so-called economic “recovery.”
Below is a chart of the widely followed University of Michigan Consumer Sentiment Index.
Chart courtesy of www.StockCharts.com
As you can see, consumer sentiment has tumbled to its lowest level … Read More
The burning question that’s facing economists like me today and that will only be answered in the future: did creating $3.0 trillion in new money out of thin air really make things better or worse for America?
My personal view, as expressed in these pages, is that the rich (the big banks and Wall Street) got richer from the “printing press” era, while the average American did not directly benefit from the Fed’s actions.
In fact, in America today, the spread in wealth between the rich and the poor has never been so great. As for the middle class, they are becoming extinct.
The “Report on the Economic Well-Being of U.S. Households in 2013,” recently published by the Federal Reserve, says 34% of Americans feel they are worse off today than they were five years ago, and 42% said they are holding back on the purchase of major or expensive items. (Source: Federal Reserve, August 7, 2014.)
But the data gets worse…
Of those Americans who had savings prior to the 2008 recession, 57% of them say they have used up some or all of their savings in order to combat the after-effects of the Great Recession.
Only 48% of Americans said that they would be able to cover a “hypothetical emergency expense” that costs $400.00 without selling something or borrowing money. Simply put, about half of Americans have less than $400.00 in emergency funds!
Meanwhile, 31% of Americans say they do not have any retirement savings or pension. Of those who are between the ages of 55 and 64, 24% of them expect to work as long as possible, … Read More
The Bureau of Economic Analysis (BEA) surprised even the most optimistic of economists when it reported the U.S. economy grew at an annual rate of four percent in the second quarter of 2014.
On the surface, the number—four percent growth—sounds great. But how serious should we take that gross domestic product (GDP) figure?
Firstly, I’d like to start by pointing out that the BEA often revises its GDP numbers downward. We saw this happen in the first quarter. First, we saw the BEA say the U.S. economy grew by 0.1% in the first quarter, then after a couple of revisions, they said the economy actually contracted 2.9% in the quarter.
I obviously expect the BEA to lower its initial second-quarter GDP numbers again.
But here’s what really worries me…
If the GDP data suggests the U.S. economy is growing, why are investors pricing in an economic slowdown?
The chart below is of the 10-year U.S. Treasury, the so-called safe haven. Back in 2007 to 2009, investors ran to U.S. Treasuries as a safe haven. As the U.S. economy improved, the yields on the 10-year U.S. Treasury started to rise as interest rates rose with general optimism towards the economy.
Chart courtesy of www.StockCharts.com
But since the beginning of this year, yields on the 10-year U.S. notes have declined 18%. This is despite the fact the biggest buyer of these bonds, the Federal Reserve, has stepped away from buying these Treasuries as its quantitative easing program comes to an end.
At the same time, we have the stock market finally starting to give in. So if the stock market is a … Read More
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