Friday, November 04, 2005


The US Consumer Is Not Happy

The Daily FX has the latest on the US dollar. "Non-farm payrolls have not failed us yet; it delivered a nice dose of volatility to the market once again today. The dollar first took a nosedive on the back of the report but then managed to recuperate its losses and even hit a new 1.5 year high against the Euro by the day’s end. Non-farm payrolls were reported at 56k vs. expectations of 120k."

"It seems that the most important thing at this point is that the market is focusing on income growth, suggesting that the Fed has further leeway to raise rates. However we still caution that weak labor growth and the prospect of high heating bills still poses a risk for the US consumer, especially going into the usually critical Christmas shopping season."

As Business Week shows, the prospects for the Christmas season looks dim. "'Here we are, officially celebrating the fourth anniversary of this economic expansion, and the wage income share of the national income pie is south of 46 percent,' fumed a research note by Merrill Lynch North American economist David A. Rosenberg. 'At no point in the past 50 years has this ratio been so low so far into a business cycle." Historically, the ratio has been 3.5 percentage points higher.'"

"The ratio is important because it looks at wages, your paycheck, instead of other sources of income, like the stellar Wall Street bonuses we saw last year and are almost certain to see again this year. Wage gains haven't kept pace with inflation, but total income continues to look good, thanks to those hefty bonuses."

"October auto sales were the weakest for any month since mid-1998. Your interest in home buying has hit its lowest level since 1991."

"Outstanding balances on credit cards have risen to more than $800 billion, or $7,200 per U.S. household. The United States debt-to-income ratio rose as much in the past five years as it did in the previous 15 years, according to Merrill Lynch."

"Jumps in gasoline and heating prices make getting anywhere and staying warm at home more challenging. Increases in interest rates and higher minimum credit card payments have chipped away at checking accounts. If you've been renting and want to buy a home, good luck: Affordability for first-time home buyers is the worst it has been in 16 years."

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