Smoke and Mirrors

Today, everyone will be talking about the fact that the U.S. lost 524,000 jobs in December. While this means 2008 saw the most job losses since 1945, 524,000 is way, way lower than traders on the floor were expecting. Numbers like 700,000 or even 800,000 jobs lost were bandied about.
Chart source: Calculated Risk.


So today's number is good news, right? Not exactly. The umployment rate now clocks at 7.2% versus a forecast of 7%. That's because of upward revisions to previous months' jobs lost figures.


And that brings up the next problem. December's number is so low that many people (including me) don't believe it. It could be smoke and mirrors from a government that doesn't think we can handle the truth. I expect we'll December's number revised in the future. After all, state unemployment claims systems are being overwhelmed by new filings. Things are so bad in Michigan that people are waiting in line four hours to file for unemployment. I think a lot of unemployed got left out of last month's number.


In other news, Citigroup has agreed to a "cramdown" of existing mortgages. This is probably a necessary step in the ongoing adjustment of the housing market.


And December's retail numbers are in and were worse than predicted. Even discount chains like Wal-Mart missed their targets. Driving this, a huge decline in consumer credit. Consumer credit shrank at 16 TIMES what was predicted! And the debt to income ratio has dropped by 2.5% in just 4 months!


Consumer credit fell $3.6 billion in October, split between a $0.2 billion decline for revolving credit and a $3.4 billion decline for nonrevolving debt.


In the long run, consumers shedding debt is a good thing. We may be seeing the first steps in a re-alignment of our system from one that is based on debt to one that is based on savings. But in the short run, for a capitalist system that thrives on credit, it's a very bitter pill to swallow.

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