Americans’ Incomes Lose Ground in August
- Oct 03, 2011
The Bureau of Economic Analysis had some sobering news to offer on Friday when it said that Americans’ personal income decreased $7.3 billion, or 0.1 percent, in August compared with July, and that disposable personal income had likewise decreased $5 billion, or a little less than 0.1 percent. It was the first monthly downward movement in personal income in about two years.
The BEA also reported that personal consumption expenditures increased $22.7 billion, or 0.2 percent, month-over-month in August. Consumer credit hasn’t been expanding lately—except for student loans—so Americans seemed to be dipping into their savings to fund the increase. Much of the increase in spending went to pay for a slight increase in durable goods and services. Purchases of nondurable goods were down.
Indeed, personal saving—disposable personal income less personal outlays—was $519.3 billion in August, compared with $550.5 billion in July, noted the BEA. Personal saving as a percentage of disposable personal income was 4.5 percent in August, compared with 4.7 percent in July.
Bankers see a hard road ahead for housing
FICO, the company best known for calculating credit scores, published the results of its quarterly survey of bank risk professionals on Friday, and it seems that bank risk professionals are a gloomy lot these days. The bankers expect delinquencies on consumer loans to rise, underwriting standards to become stricter and the housing sector to continue struggling far into the future.
Regarding housing, 49 percent of respondents said that prices wouldn’t climb back to 2007 levels before 2020. Only 21 percent said that such pricing levels would be reached before 2020. Moreover, the glum sentiment extended beyond mere property values. Among the bankers surveyed, 73 percent believed that mortgage defaults would remain elevated for at least five more years. Some 46 percent expected mortgage delinquencies to increase over the next six months, while only 15 percent believed mortgage delinquencies would decline during that period.
The respondents also expect delinquencies to rise on auto loans, credit cards and student loans. Auto lending had been a bright spot in FICO’s previous quarterly surveys, but in the latest one, 30 percent of the respondents predict a rise in auto delinquencies, while only 21 percent expect them to fall. As for credit cards, 40 percent expect delinquencies to rise and 23 percent expect them to fall, and for student loans, 48 percent think delinquencies will rise. Only 13 percent expect them to fall.
Consumer sentiment improves a notch
According to the latest Reuters/University of Michigan’s consumer sentiment index, which was released on Friday, consumers are still fairly glum (like bankers), but not quite as much as they were in mid-September. The index finished the month at 59.4, compared with 57.8 at mid-month and 55.7 at month-end August.
The report shows improvement in both consumers’ assessment of current conditions and future conditions, along with a drop in the expectation of inflation in the near- and long-term. Though the new numbers suggest an easing of sentiment since the generally shocking month of August, the reading is still among the weakest since awful period of early 2009.
Wall Street finished the week on Friday in seriously negative territory, with the Dow Jones Industrial Average losing 240.6 points, or 2.16 percent. The S&P 500 dropped 2.5 percent and the Nasdaq fell 2.63 percent.