Rising Probability For A Second Payroll Minus (And Its Implications)

Revolving consumer credit declined again in November 2020, according to data released by the Federal Reserve last week. Though the monthly seasonally-adjusted change was small, it still represents significant uncertainty and material mistrust of the underlying economic condition among a broad section of consumers. Those who are paying down their credit card balances, while avoiding taking on higher revolving debts, they are the very consumers Fed policymakers are counting on to lead any recovery rather than subvert it.

In terms of non-revolving credit, the federal government continues to do what it does and will always do regardless of the circumstances. Private banks and non-bank financial entities have added back some credit they’d expunged earlier in 2020. Even so, the rate is minimal indicating that the financial sector remains as way about these same factors.

Total consumer credit (both revolving and non-revolving) held by non-government entities in November was 1.7% below what it had been in the same month of the previous year. Revolving credit alone continues to be down just about double-digits.

The primary reason for all this is, quite simply, the labor market. As we saw with December’s payroll report, the employment situation took a step backward after having its rebound halted months ago only around halfway back. The result is, as of the end of 2020, an ongoing deficit of about 10 million payrolls.

The worst month during the Great “Recession”, the one with the largest cumulative deficit, was “only” 8.7 million.

Those figures do not include the estimated 9 million Americans who continued to be employed last month but experienced work or hourly disruption(s) anyway. In addition, there should have been at least another 1.6 million jobs created which never had the chance.

Widespread caution is entirely merited, no matter how much sentiment might have been introduced by QE (and its sentimental effects on share prices).

The longer this keeps up, no matter how many or how big the government writes its upcoming checks, it might be a minor miracle should the personal savings rate end 2021 somewhere below 50%.

On Thursday, the Department of Labor reported (weekly Thursday ritual) an enormous surge of initial jobless claims. Seasonally-adjusted, the tally made it back close to 1 million again. At 965,000 the first week in 2021, it’s way off the charts of where “recovery” should be (excess claims).

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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