Fed can’t find inflation, but let’s raise rates to help the banks

The Federal Reserve — headed now by Jay Powell — released the minutes from the last meeting in March. The Fed is feeling that inflation, which has been under 2% annually for many years, is about to grow.

There is little evidence of inflation, but the Fed says that since Trump’s tax cuts gave thousands of workers a bonus and the raising of minimum wage, inflation will come and the Fed should continue raising rates. Continue reading

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More bad news for consumers and retailers

The bleak state of retail has just seen another canary in the coal mine fall to the bottom of the cage.

While store closures and bankruptcies are moving in a record pace, now we are seeing for the first time in last five years credit card defaults are climbing as well.

Default rates on US credit cardholders have risen 13% from last year’s levels, as bank issuers have recently stepped up their reserves on their balance sheets to deal with the tapped out consumer, according to the S&P/Experian Bankcard Default Index.

The consumer credit card default rate, which has risen over the last five months,  is back to 2013 levels. And it’s not just credit cards, auto loan and mortgage defaults or impairments are also climbing to years high levels.

The US consumer, who has not seen a significant raise in wages for almost a decade, is losing the war of attrition. And as the Fed eyes further rate rises the interest on credit purchases will rise as well leaving larger balances and further defaults.

On the pending retail bankruptcies apparel executives see a great shake out.

“There are just too many stores, especially those that sell clothing, Urban Outfitters Chief Executive Officer Richard Hayne said.

“This created a bubble, and like housing, that bubble has now burst,” said Hayne. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

According to S&P Global Market Intelligence report, there are 10  retailers that are  at high risk of defaulting this year Here are those companies ranked in order of likelihood.

  • Sears Holdings
  • DGSE Companies
  • Appliance Recycling Centers of America
  • The Bon-Ton Stores
  • Bebe Stores
  • Destination XL Group
  • Perfumania Holdings
  • Fenix Parts
  • Tailored Brands
  • Sears Hometown and Outlet Stores

No one's paying retail, look at the numbers

The May retail sales numbers came out and the overall number was a few basis points higher than analysts projections.

The cheerleaders crowed and pointed out that the consumer is back. What they failed to note was that much of the beat was centered on a 2.1% growth in gas station retail sales.

These purchases are necessities for part-time workers needing to commute to two or more jobs. May also marks the beginning of the summer driving season.

On the other side of the ledger, malls and other large retail outlets saw sales decline year-over-year.

Also released yesterday was a report on escalating lates and defaults on credit card debt. All of the card issuers were down double the market percentage-wise on Tuesday.

The consumer is so cash-strapped they are not even able to get the minimum payment out to the card issuer. Some 8% of credit debt is now 90+ days late and the trend is up.

However, that 8% mark in credit card defaults looks rosy when you compare it to the 11% default rate in student loans.

Almost $130B of the $1.26T student debt market is non-performing.

But alas, we get Fed chief Janet Yellen speaking today. There is far less drama as no one expects the Fed to do anything with rates. But she will jawbone how this measure is above trend and that measure is picking up and that the July meeting will be “on the table” as she kicks the can down the road to no rate hikes this year, albeit in December after the election.