Hi Maurice,
It would be terrible news if debt levels were dropping.
Uh-oh...
online.wsj.com
Consumers Cut Borrowing At Fastest Pace in 10 Years
Unemployment Rate Drops to 5.7%;
Inventories at Wholesale Level Surge
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
WASHINGTON -- Americans unexpectedly pared down their outstanding borrowing in December at the fastest pace in more than 10 years.
The Federal Reserve's report on consumer credit followed two other economic reports Friday, one that showed a surprising drop in the unemployment rate last month, and a second that detailed the biggest increase in wholesale inventories in more than two years in December.
The Labor Department said the unemployment rate fell to 5.7% in January from 6% the previous month. Nonfarm payrolls increased by 143,000 jobs -- the largest rise since November 2000 -- and partly reversed December's revised drop of 156,000, which initially was estimated as 101,000 decline.
Economists had expected the unemployment rate to hold steady. Amid sluggish economic growth and worries about a war with Iraq, employers have cut more than two million jobs over the last two years.
Stability, Not Growth
January's surge in new jobs was concentrated in stores, restaurants and bars, which added 101,000 new positions. Economists had predicted retail hiring would pick up because holiday employment was well below normal. That meant fewer seasonal workers were laid off in January.
But economists cautioned against reading too much into the news, citing the volatile nature of seasonal hiring and the government's penchant for revising its data. "It's difficult to make strict comparisons with previous numbers," said Lynn Reaser, chief economist with Bank of America Capital Management Inc. "The good news is the jobs market is not deteriorating further, but companies still seem to be reluctant to step up hiring."
Diane Swonk, chief economist at Bank One Corp., said the payrolls report doesn't show growth. When averaging together the last two months of data, it indicates the employment situation is merely "stable," she said on CNBC.
Big companies aren't doing the hiring, Ms. Swonk noted. Instead, the pickup in payrolls is coming from small businesses and self-employers who are creating work for themselves outside the usual avenues, she said.
Construction firms added 21,000 jobs, and the service industry added 143,000 jobs. But manufacturers continued to trim payrolls, shedding 16,000 jobs after cutting 80,000 in December.
The employment report also validated the Federal Reserve's view that inflation risks remain tame. Average hourly earnings were unchanged at $14.98 after a 0.3% increase in December. Wage growth slowed to 2.7% from a year earlier, down from 3% growth in December. The average work week rose to 34.2 hours, up six minutes from December.
Consumers Tone Down Borrowing
In a separate report, the Fed said outstanding balances of consumer borrowing, which includes car and credit-card loans among other forms of installment debt, fell $4 billion overall, or by an annual rate of 2.75%, to $1.722 trillion in December.
The last time Americans cut their debt at a faster annual pace was in April 1992, when consumer credit declined by 3%, the Fed said. In dollar terms, the drop was the biggest since a $5.825 billion slide in December 1990.
Economists were way off. They had predicted credit would increase by $4.3 billion in December, according to a survey by Thomson Global Markets.
Tallies for borrowing in November were revised sharply to a slide of only $100 million, compared with initial estimates of a $2.2 billion drop. Monthly credit data tend to be highly volatile and are frequently revised.
Still, the drops in November and December mark the first back-to-back declines in consumer credit since May and June of 1992, when the economy was still shaking off the effects of recession, the Fed said.
The big drop in December came from revolving credit, such as credit cards. That type of outstanding borrowing shrank by $8.4 billion, or a 14% annual rate -- its fastest decline since December 1975.
Nonrevolving credit, such as loans for cars, education and vacations, actually climbed in December by $4.4 billion.
For all of 2002, consumer-credit outstanding rose by 3.3%, the smallest increase since 1992. It was down at a 0.1% annual pace in the third quarter. In annualized terms, consumer credit fell at a 2.8% rate in December.
Wholesale Inventories Climb
In a third report Friday, the Commerce Department said wholesale inventories increased 0.8% in December to a seasonally adjusted $287.26 billion. It was the largest monthly gain since June 2000, when inventories rose 0.9%, and followed up on a revised 0.3% increase in November.
At the same time, wholesale sales fell 0.8% to a seasonally adjusted $233.66 billion. That was the largest one-month decline since a 1.7% fall in October 2001, and it reversed some of November's revised 1.1% increase.
The increase in inventories may mean wholesalers were caught off guard by dreary holiday sales, analysts said. The buildup, even if involuntary, could end up lifting the government's estimate of fourth-quarter economic growth to 1.3% from the originally reported 0.7%, said Jade Zelnik, chief economist with RBS Greenwich Capital. But that increase could come at a price; wholesalers -- burned by their bets at the end of 2002 -- could shy away from spending in the first quarter, which would sap economic growth.
December's figures were way off what economists had expected, according to a survey by Thomson First Call. They had anticipated a 0.3% increase in inventories and 0.4% growth in sales.
The inventory-to-sales ratio, which measures how many months it would take for companies to exhaust their inventories, rose to 1.23 in December from November's record low of 1.21.
Stocks of nondurable goods rose 1.6%, with petroleum inventories soaring 16.5% -- a record monthly gain. Stocks of durable goods rose 0.3%, led by a 1.8% gain in computer equipment. But automobile inventories fell 0.8%, the biggest drop since August 2002.
Meanwhile, sales of durable goods fell 1.4%.
For the 12 months through December, wholesale inventories were unchanged, while sales rose 5.8%.
Updated February 7, 2003 5:33 p.m. EST
KJC |
