Friday, September 28, 2007
Less Than Joyous Numbers
We are seeing some positive signs in commercial paper as a result of the Fed cut. For example:
However those saying the "panic" is over are utterly missing the point. The "panic" was caused by retrenchment in credit terms in banks which started before the August crash, as the latest edition of G.20 shows. That sudden July pop in business and real estate credit at finance companies was caused by changes in terms at banks. Thus the August turmoil was a reaction to a structural change in credit, not a cause.
The question is whether much has changed at banks to alter the structure? I see no signs that it has, and I did post on July 2nd that it looked like smaller commercial loans were going splat. So the July pop in finance company debt was a result of changes in June. What were those changes? The realization that more and more loans were going bad and that reserves and terms and risk assessment would all have to be adjusted away from easy credit.
Given all that, it appears quite unlikely that the fundamental trend seen here will alter very much, although the first shock has hit and the rate of change will slow. What will not slow is the rate of risky loans going bad. That will accelerate.
Therefore the Fed is going to cut again within four months.
Personal income August. Sometimes you just have to look at the numbers:
Private wage and salary disbursements increased $12.8 billion in August, compared with an increase of $22.4 billion in July. Goods-producing industries' payrolls increased $0.6 billion, compared with an increase of less than $0.1 billion; manufacturing payrolls decreased $0.6 billion, in contrast to an increase of $0.1 billion. Services-producing industries' payrolls increased $12.3 billion, compared with an increase of $22.2 billion. Government wage and salary disbursements increased $1.6 billion, compared with an increase of $1.4 billion.We should see a rise in these numbers next month, because by then we will have picked up all the effect of schools, colleges and universities coming back into session. We are going to see a remarkable collapse in commercial building which will overcome that quite quickly.
Found your blog from CR, the other bit of the details that caught my eye was proprietor income...would that be small businesses?