Consumers In Holiday Mood

Popular Economics Weekly

Consumers are going to celebrate the holidays in a much bigger way than in recent years. Not only have consumer confidence and expectations been rising since summer, but consumer borrowing is exploding, signaling that we will see a surge in holiday spending. This is what will ultimately boost both employment and gross domestic product growth, which fell to 1.3 percent in Q2.

For instance, another big jump in student loans drove consumer credit higher in August, up $18.1 billion split between a $13.9 billion rise for non-revolving credit and a $4.2 billion rise for revolving credit. Non-revolving credit shows across the board gains reflecting that month's very strong vehicle sales but mostly a surge in the federal government component which is where Sallie Mae student loans are classified. Even the gain in revolving credit is solid and confirms the rise underway in consumer confidence, to fund credit card purchases.

Graph: Econoday

Even better news was that the September unemployment rate fell to 7.8 percent, mainly because 873,000 more found jobs in the Household Survey that includes the self-employed.

Graph: Calculated Risk

And, total nonfarm payroll employment for July was revised upward from +141,000 to +181,000, and the change for August was revised from +96,000 to +142,000. Employment growth has now averaged 146,000 per month in 2012, vs. 153,000 in 2011.

So how severe was the Great Recession, as compared with the rest of the world? Calculated Risk brought up Harvard Economists Kenneth Rogoff and Carmen Reinhart’s study that showed the seven most severe downturns in modern history. Finland seems to have fared the worst in 1991 with job growth not restored for 17 years, whereas our 1929 Great Depression took 10 years to recover.

Graph: Oregon.gov

So looked at from that point of view, the Great Recession is barely a blip on the world screen in terms of the percentage of unemployed, but it could last a total of 7 years, according to most economists (to 2014) before the employment deficit is made up.

Harlan Green © 2012