from www.reuters.com
Consumer sentiment at lowest level since 1980
By Burton Frierson
NEW YORK (Reuters) - Consumer confidence fell more than expected in June, hitting another 28-year low as surging prices and mounting job losses contributed to a bleak outlook, according to a survey released on Friday.
The Reuters/University of Michigan Surveys of Consumers said five-year inflation expectations remained steady at the peak of 3.4 percent reached in May, which was the highest in 13 years.
Federal Reserve officials have focused on long-term inflation expectations and the persistence of such pressures heightens their dilemma -- whether to fight price growth or support a weak economy in the grips of the worst housing slump since the Depression of the 1930s.
The Surveys of Consumers said the final June reading for its index of confidence fell to 56.4 from May's 59.8. The report said the pace of consumer spending is likely to sink at least through the start of 2009.
"Moreover, gas prices have risen to an all-time peak, food prices posted the largest increases in decades, home prices have fallen faster than any time since the Great Depression, and there has been widespread distress associated with foreclosures," the report added.
Also weighing on consumers, data earlier this month showed U.S. employers shed jobs for a fifth straight month in May and the unemployment rate jumped to 5.5 percent, its highest in more than 3-1/2 years.
Economists had expected a reading of 57.0, according to a Reuters poll. Their forecasts ranged from 55.9 to 60.0. The final June result is slightly below the preliminary figure of 56.7 released on June 13.
"Overall, no new information, only confirmation of prevailing weak sentiment," analysts at RBS Greenwich Capital said in a note to clients about the report.
Financial markets showed little immediate reaction to the report. Stocks were flat and the dollar was down against the yen. Government bonds were higher on the day.
The June reading is the lowest since 51.7 in May 1980, which was also the lowest reading ever. The index dates back to 1952, though the survey has been conducted since 1946.
One-year inflation expectations declined to a still-elevated 5.1 percent from May's 5.2 percent. May's one-year inflation expectations reading was the highest since 5.2 percent in February 1982.
The index of consumer expectations fell to 49.2 in June -- its lowest since May 1980. This was down from May's 51.1. Meanwhile, the index of current personal finances fell to 69 in June -- the lowest on record -- from 80 in May.
(Editing by Jonathan Oatis)
As expected, it is getting uglier - FAST. This is a consumer led recession. Expect consumer spending to drop dramatically once the short term bounce from government refund checks runs out. All consumer discretionary items are going to get hit at the median to upper consumer levels. Restaurants, Retail, Autos, Electronics, Housing (but we knew that!), Vacations, Road Trips - all of it! Once full fledged layoffs start - I expect targeted education industries to do well. I expect collection and repo agencies, bankruptcy lawyers and consultancies (on both consumer and business levels) to do booming business.
Showing posts with label Consumer. Show all posts
Showing posts with label Consumer. Show all posts
Friday, June 27, 2008
Friday, June 20, 2008
Credit Card limits get cut
from www.nytimes.com
June 21, 2008
Banks Trimming Limits for Many on Credit Cards
By ERIC DASH
The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up.
After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.
Banks that issue cards like Visa and MasterCard, as well as the American Express Company, are cutting the limits for customers who have run up big debts, live in areas that have been hit hard by the housing crisis or work for themselves in troubled industries.
The reductions come as American consumers, squeezed by a slack economy, a weak housing market and rising unemployment, are falling behind on monthly credit card payments in growing numbers. Credit card lenders are also culling their accounts ahead of new rules that are intended to benefit consumers but could limit the profits on customers deemed bigger risks.
Many Americans have come to rely on credit cards to cover everyday expenses like groceries, gasoline and medical bills, in addition to big-ticket items and luxuries.
While consumer spending, the nation’s economic engine, has been surprisingly resilient of late, a more sweeping reduction in credit card limits could pose serious challenges for hard-pressed consumers and, in turn, the broader economy.
Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.
It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.
Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.
“In all the years I have had credit cards, I have never had this happen before,” Ms. Pfitzer said. “Now it has happened twice in the last few months.”
Banks and mortgage companies are required by law to notify customers within three days of changing the limits on a home equity line of credit, and many have been aggressively lowering them. But credit card lenders have 30 days to notify their customers, and often do so only after taking action.
Such moves can cause a consumer’s credit score to drop, forcing the person to pay higher interest rates and making it harder to obtain new loans.
Even so, disclaimers in the fine print of credit card applications typically stipulate that the issuer can cancel or alter credit limits at any time, regardless of customers’ payment or credit history.
Washington Mutual cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target and Wells Fargo each trimmed their credit card lines by about 3 percent.
Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers — Bank of America, JPMorgan Chase and Citigroup — slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.
Big banks face intense pressure on their balance sheets as they bring on billions of dollars worth of complex mortgage-related investments and other loans they are struggling to sell. Meanwhile, they are bracing for a surge in credit card losses as the job market and economy get worse.
Consumers are reaching deeper into their pockets to pay for groceries and gas. Last year, as many as half of all those who took out home equity loans used the money to help pay down their credit card debt, according to J.D. Power research. But home equity is no longer an easy source of financing. And month after month, cardholders keep falling behind on their bills.
“This downturn is the perfect storm where the consumer is getting squeezed from all levels,” said Michael Taiano, a credit card industry analyst at Sandler O’Neill. He projects that credit card loss rates for lenders, now around 5.7 percent, could go as high as 10 percent in next 18 months. That would be higher than the peak levels
reached after the 2001 technology bust.
Since borrowers typically run up their balances before they stop paying, issuers have started cutting lines of credit. Often, lenders will lower customers’ credit limits as they pay down their debt — a technique known in the industry as “chasing the balance.” This way, they are on the hook for less money if borrowers default.
“They are trying to cut their risk exposure,” said Bill Ryan, an analyst at Portales Partners. “The consumer that used to use his house as an A.T.M. is now starting to use their credit card as an A.T.M.”
American Express is reducing credit lines for customers holding subprime mortgages and small business customers in industries tied to the real estate market. And Chase Card Services, the consumer arm of JPMorgan, is taking similar action on distressed borrowers, especially in places like California, Arizona and Florida where home prices have declined sharply. Washington Mutual, HSBC, Target, and Wells Fargo all acknowledged they were pulling in lines of credit as part of broader strategy of reducing risk.
None of the lenders, as a matter of policy, would comment on individual customer accounts.
Cardholders in places like Orange County, Calif.; Las Vegas; and Phoenix have noticed their credit lines shriveling up.
John D. Craig Jr., a college administrator from outside Buffalo, said he had regularly been paying own his balance on a rarely used card when Chase informed him they were reducing his credit limit to $4,000 from $20,000. The news took him by surprise.
“For two or three years, it was, ‘We are going to give you more credit, more credit more credit,’ ” he said. “Now, in the last two or three months, it has been the exact opposite.”
Those who work in real estate-related fields say they are being pinched by the credit card lenders at a time when they most need to have money available. .
In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Visa platinum credit card had been reduced in April to $4,800 from $8,000 even though he says he never missed a payment and had no recent credit blemishes.
Leslie Sherman, the owner of Realty Executives in Las Vegas, said American Express reduced the credit limits on several personal and business cards virtually at the same time.
“It has definitely made me spend less,” she said. But Ms. Sherman said that it had been a blow to her ego, too.
“It made me feel like I wasn’t responsible. I know when to put my reins on and when not to,” she added. “I didn’t appreciate someone thanking me for always paying my bills on time and being a good customer by dinging my credit.”
Meredith Whitney, an Oppenheimer banking analyst, said the impact of the recent regulatory proposals on lender profits could be so severe that she expects the industry to pull back $2 trillion in outstanding credit lines by 2010. That would be a 45 percent reduction in credit currently available to consumers. Risky borrowers would be squeezed the most.
Customers with stronger credit histories have probably noticed few changes. But card issuers are also becoming pickier about whom they approve. In April, nearly 30 percent of senior loan officers said they were tightening their credit card lending standards this winter, according to a Federal Reserve survey. That was about three times as many who said they did so in the fall.
Lenders are also sending fewer offers in the mail. The volume of direct mail promoting credit cards fell nearly 19 percent since last October, to about 900 million pieces, according to Mintel Comperemedia, a marketing research company.
And borrowers already in debt, once courted by card companies, are being shunned.
Zero-balance teaser rate offers have fallen by about 15 percent over the last year, according to Mintel.
Consumer Debt on the lower end of the FICO scores is the next shoe to fall in the world of Wall Street finance. Securitized products of Auto loans, Car loans, HELOCs (your mortgage as your ATM) will all suffer. This will lead to further losses in Financials at a time when home prices are STILL falling. Credit availability will become scarce leading to a significant retrenchment in living standards for significant numbers of Americans. I expect debt collection businesses on the consumer level and corporate bunkruptcy specialists will be very busy in the next 2 years. The collateral damage will ripple through even high end "Nordstrom consumers" as well although I suspect the ultra luxury "Hermes consumers" will do just fine in a rising inflation environment. Somehow those people always seem to make money
June 21, 2008
Banks Trimming Limits for Many on Credit Cards
By ERIC DASH
The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up.
After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.
Banks that issue cards like Visa and MasterCard, as well as the American Express Company, are cutting the limits for customers who have run up big debts, live in areas that have been hit hard by the housing crisis or work for themselves in troubled industries.
The reductions come as American consumers, squeezed by a slack economy, a weak housing market and rising unemployment, are falling behind on monthly credit card payments in growing numbers. Credit card lenders are also culling their accounts ahead of new rules that are intended to benefit consumers but could limit the profits on customers deemed bigger risks.
Many Americans have come to rely on credit cards to cover everyday expenses like groceries, gasoline and medical bills, in addition to big-ticket items and luxuries.
While consumer spending, the nation’s economic engine, has been surprisingly resilient of late, a more sweeping reduction in credit card limits could pose serious challenges for hard-pressed consumers and, in turn, the broader economy.
Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.
It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.
Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.
“In all the years I have had credit cards, I have never had this happen before,” Ms. Pfitzer said. “Now it has happened twice in the last few months.”
Banks and mortgage companies are required by law to notify customers within three days of changing the limits on a home equity line of credit, and many have been aggressively lowering them. But credit card lenders have 30 days to notify their customers, and often do so only after taking action.
Such moves can cause a consumer’s credit score to drop, forcing the person to pay higher interest rates and making it harder to obtain new loans.
Even so, disclaimers in the fine print of credit card applications typically stipulate that the issuer can cancel or alter credit limits at any time, regardless of customers’ payment or credit history.
Washington Mutual cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target and Wells Fargo each trimmed their credit card lines by about 3 percent.
Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers — Bank of America, JPMorgan Chase and Citigroup — slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.
Big banks face intense pressure on their balance sheets as they bring on billions of dollars worth of complex mortgage-related investments and other loans they are struggling to sell. Meanwhile, they are bracing for a surge in credit card losses as the job market and economy get worse.
Consumers are reaching deeper into their pockets to pay for groceries and gas. Last year, as many as half of all those who took out home equity loans used the money to help pay down their credit card debt, according to J.D. Power research. But home equity is no longer an easy source of financing. And month after month, cardholders keep falling behind on their bills.
“This downturn is the perfect storm where the consumer is getting squeezed from all levels,” said Michael Taiano, a credit card industry analyst at Sandler O’Neill. He projects that credit card loss rates for lenders, now around 5.7 percent, could go as high as 10 percent in next 18 months. That would be higher than the peak levels
reached after the 2001 technology bust.
Since borrowers typically run up their balances before they stop paying, issuers have started cutting lines of credit. Often, lenders will lower customers’ credit limits as they pay down their debt — a technique known in the industry as “chasing the balance.” This way, they are on the hook for less money if borrowers default.
“They are trying to cut their risk exposure,” said Bill Ryan, an analyst at Portales Partners. “The consumer that used to use his house as an A.T.M. is now starting to use their credit card as an A.T.M.”
American Express is reducing credit lines for customers holding subprime mortgages and small business customers in industries tied to the real estate market. And Chase Card Services, the consumer arm of JPMorgan, is taking similar action on distressed borrowers, especially in places like California, Arizona and Florida where home prices have declined sharply. Washington Mutual, HSBC, Target, and Wells Fargo all acknowledged they were pulling in lines of credit as part of broader strategy of reducing risk.
None of the lenders, as a matter of policy, would comment on individual customer accounts.
Cardholders in places like Orange County, Calif.; Las Vegas; and Phoenix have noticed their credit lines shriveling up.
John D. Craig Jr., a college administrator from outside Buffalo, said he had regularly been paying own his balance on a rarely used card when Chase informed him they were reducing his credit limit to $4,000 from $20,000. The news took him by surprise.
“For two or three years, it was, ‘We are going to give you more credit, more credit more credit,’ ” he said. “Now, in the last two or three months, it has been the exact opposite.”
Those who work in real estate-related fields say they are being pinched by the credit card lenders at a time when they most need to have money available. .
In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Visa platinum credit card had been reduced in April to $4,800 from $8,000 even though he says he never missed a payment and had no recent credit blemishes.
Leslie Sherman, the owner of Realty Executives in Las Vegas, said American Express reduced the credit limits on several personal and business cards virtually at the same time.
“It has definitely made me spend less,” she said. But Ms. Sherman said that it had been a blow to her ego, too.
“It made me feel like I wasn’t responsible. I know when to put my reins on and when not to,” she added. “I didn’t appreciate someone thanking me for always paying my bills on time and being a good customer by dinging my credit.”
Meredith Whitney, an Oppenheimer banking analyst, said the impact of the recent regulatory proposals on lender profits could be so severe that she expects the industry to pull back $2 trillion in outstanding credit lines by 2010. That would be a 45 percent reduction in credit currently available to consumers. Risky borrowers would be squeezed the most.
Customers with stronger credit histories have probably noticed few changes. But card issuers are also becoming pickier about whom they approve. In April, nearly 30 percent of senior loan officers said they were tightening their credit card lending standards this winter, according to a Federal Reserve survey. That was about three times as many who said they did so in the fall.
Lenders are also sending fewer offers in the mail. The volume of direct mail promoting credit cards fell nearly 19 percent since last October, to about 900 million pieces, according to Mintel Comperemedia, a marketing research company.
And borrowers already in debt, once courted by card companies, are being shunned.
Zero-balance teaser rate offers have fallen by about 15 percent over the last year, according to Mintel.
Consumer Debt on the lower end of the FICO scores is the next shoe to fall in the world of Wall Street finance. Securitized products of Auto loans, Car loans, HELOCs (your mortgage as your ATM) will all suffer. This will lead to further losses in Financials at a time when home prices are STILL falling. Credit availability will become scarce leading to a significant retrenchment in living standards for significant numbers of Americans. I expect debt collection businesses on the consumer level and corporate bunkruptcy specialists will be very busy in the next 2 years. The collateral damage will ripple through even high end "Nordstrom consumers" as well although I suspect the ultra luxury "Hermes consumers" will do just fine in a rising inflation environment. Somehow those people always seem to make money
Monday, May 12, 2008
Jamie Dimon on the Consumer Recession
Long slump may follow crunch: JPMorgan CEO
Mon May 12, 2008 2:37pm EDT
By Joseph A. Giannone
NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) Chairman and Chief Executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession.
The slump in mortgage and corporate loan markets could bottom out this year, said Dimon, whose bank largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.
Yet the economy may face a longer-term challenge even as financial markets begin to function again, the "slower burn" of a recession that may rival the severity of the 1982 contraction, he said.
These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last through next year and into 2010, he said.
If that happens, Dimon warned that New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to $900 million by year-end.
Dimon further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profit.
In the current quarter, Dimon said subprime mortgage losses could rise to between $200 million and $250 million, with prime mortgages generating about $100 million in losses.
Loss rates in JPMorgan Chase's massive credit card business are expected to reach 5 percent in the second quarter and rise to as high as 6 percent next year, while at the same time interest and fee revenue decline.
The third-largest U.S. bank also expects to write down "several-hundred-million" dollars of auction rate securities, he said.
(Editing by Braden Reddall)
Mon May 12, 2008 2:37pm EDT
By Joseph A. Giannone
NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) Chairman and Chief Executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession.
The slump in mortgage and corporate loan markets could bottom out this year, said Dimon, whose bank largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.
Yet the economy may face a longer-term challenge even as financial markets begin to function again, the "slower burn" of a recession that may rival the severity of the 1982 contraction, he said.
These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last through next year and into 2010, he said.
If that happens, Dimon warned that New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to $900 million by year-end.
Dimon further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profit.
In the current quarter, Dimon said subprime mortgage losses could rise to between $200 million and $250 million, with prime mortgages generating about $100 million in losses.
Loss rates in JPMorgan Chase's massive credit card business are expected to reach 5 percent in the second quarter and rise to as high as 6 percent next year, while at the same time interest and fee revenue decline.
The third-largest U.S. bank also expects to write down "several-hundred-million" dollars of auction rate securities, he said.
(Editing by Braden Reddall)
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