Higher unemployment could very well kill the US consumer

In the previous entry we discussed whether the previous stimulus package had actually worked and what another one should look like. The spectre of rising unemployment gives additional urgency to the debate.

From globaleconomicanalysis:

  • For an economy overleveraged on consumer spending the chart could hardly look worse. Yet, it is going to get worse, lots worse. Hiring has stalled, commercial real estate is hitting the skids, vacancy rates at malls are rising, lease rates are dropping. In short, the Shopping Center Economic Model Is History.
  • The reported unemployment rates is 5.7% and rising rapidly. It takes somewhere between +100K and +150K jobs a month to keep up with the birthrate and immigration. Yet, Jobs Have Declined 7 Consecutive Months. It will be interesting to see what the above chart looks like and what the economy looks like when the unemployment rate hits 6.5% or 7% sometime next year. Some will point out that unemployment is a lagging indicator. It indeed is. That means unemployment will keep rising even after the economy has turned. Now think of the implication of housing foreclosures and housing prices in light of that.

So here we have it, finally a beast potentially ferocious enough to tame that unbeatable stalwart of the world economy, the US consumer. The implications of such happening are dire though. More than two-thirds of the US economy is dependent on consumption, and Chinese exports would also be materially impacted if those consumers cut back on what they’re supposed to do, consuming.

We’re not out of the woods yet, not by a long shot. We might actually need that second stimulus package..

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