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Wednesday, May 07, 2008

Bleeping Stupid, Lazy Economists

You know what? You too can become a bleeping brilliant economist if you are willing to do just one thing - READ THE BLEEPING REPORTS! Actually look at the data! Use your common sense!

Look at this Bloomberg article about the Consumer Credit release:
U.S. consumer borrowing jumped more than double the amount economists forecast in March, indicating a slowing economy is forcing Americans to accumulate credit-card and other forms of debt.
Consumers are turning to credit cards after banks tightened standards for home-equity loans and other borrowing. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession.

``Consumers are strapped as incomes are not keeping up with inflation and this is leading them to rely increasingly on credit to see them through the worst housing downturn since the Great Depression,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York.
There's only one thing wrong with all of this brilliant bleeping pundrity and scintillating nonsense: Revolving credit dropped in March. The reason why it looks like it rose is that it was paid down at a slower than normal rate. And guess what - the same thing happened last year.

Consumers always run up CC debt leading up to the holidays, and then they pay it down over the first part of the next year. This year, like last year, they are paying it down at a slower-than-normal rate. Naturally this makes the SA adjustment look like consumer revolving credit is rising, but it isn't rising. More than likely the higher helped the trend, as did the earlier Easter.

I couldn't resist this. Last year the same trend was noted and misreported in March, so I went back and found last year's post. Here is a quote from the particular news article that flipped me out last year:
Consumers boosted their borrowing in March at the fastest pace in four months, suggesting they are remaining resilient in the face of rising energy prices and a painful housing slump.

The Federal Reserve's report, released Monday, showed that consumer credit increased at a brisk annual rate of 6.7 percent in March. That marked a pickup from February's 2.8 percent growth rate and was the biggest increase since November.
Use of revolving credit, primarily credit cards, rose at a sizzling pace of 9.2 percent. That was up from a 2.9 percent growth rate in February and was the biggest increase since November.
So last year the trend was evidence of a growing economy, and this year the same trend is evidence of the worst housing slowdown since the Great Depression? Nonsense.

The situation this year is the same as last year's - consumers are pressured and having a harder time paying down those credit card bills. But they are working them down, and my guess is that as heating costs dissipate you will see those numbers return to a more normal trend. Consumers usually use the pause between heating and cooling bills to catch up. There's no notable difference between this year's report and last year's if you look at the NSA numbers.

Look at the YoY comparison for NSA Jan, Feb & March:
2008 revolving: 958.4; 949;.1 944.1
2007 revolving: 889.1; 880.6; 878.1

2008 non-revolving: 1599.3; 1592.9; 1596.9
2007 non-revolving: 1537.7; 1532.2; 1533.7

2008 total consumer credit: 2557.7; 2542.0; 2541.0
2007 total consumer credit: 2426.9; 2412.7; 2411.8
Yes, totals grow each year, but even that is right in line with recent trends. Compared to last year, consumers paid down a little more on the CCs this year in March, and rolled up a bit on the non-revolving. As a hunch I'd say that non-revolving was mostly buying small cars to compensate for gas price rises.

By the way, the individual cited in the first article is a bank economist. Do y'all think this sort of thing might have been a factor in causing banks to get into the stupidest mortgages ever granted? Is it possible that these critters never bothered to look at the underlying realities and just produced reports setting out the CW of the day?

I've got to tell you, from the viewpoint of community banks in GA, it sure looks that way.

I heckled from a slightly different (sarcastic) perspective, but I sure do agree with you!

Nice graphs, Mark. Yep, the numbers do tell a tale different from the tale told by pundits, don't they?
Yeah, I had a lot of fun with that article. I was VERY amused that we both managed to heckle the same article independently. You were quicker to the draw it seems.

I normally only make the blog rounds once a day or so (at best), unless I leave comments that is.
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