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Global Energy Prices Headed Lower MoneyNews
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All that talk about Americans snapping shut their wallets and pocketbooks may have been exaggerated. For proof, take a look at the latest numbers released by the Federal Reserve, which show that consumer credit has grown to near-record heights, rising $3.9 billion in January to $2.162 trillion overall. That's significantly up from the $3.4 billion spike of December 2005, the Fed reports. On a seasonally adjusted basis, January maintained a 2.2% annual growth rate, compared to 2.9% for all of 2005. That was the slowest rise in consumer credit since 1992. Revolving debt, consisting mainly of credit-card financing, rose by $1.8 billion in January to $804 billion. That followed a $574.8 million decline in December 2005.
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Still, the extra $3.9 billion in debt taken on by American consumers wasn't as high as expected. Analysts surveyed by CBS MarketWatch had predicted that consumer credit would rise by $5.4 billion. This indicates that although consumers are taking on more debt, it's not at a breaking point. If consumer credit were growing at a quicker pace, it would signal that consumer debt levels could be unsustainable. More likely, this shows that consumers are becoming more comfortable with the state of the economy and they expect further growth and improved income. In fact, the latest ABC News/Washington Post consumer comfort index showed a four-point improvement in consumers' opinion of the buying climate, meaning that consumer confidence is beginning to make a turnaround. In addition, the chain store sales numbers also improved for the week ending March 4. It was the third consecutive week of sales growth. The one component missing from the consumer credit data is mortgages. So the growth in consumer credit doesn't reflect the slowdown in the housing market. And, once again, the amount of mortgage applications for buying a home fell in the week ending March 3. And purchase application numbers have gone down in five out of the past six weeks. Moreover, there have been 12% less purchase applications than last year. Clearly, demand for homes has slowed considerably in recent months. Refinancings showed some strength this week, as the refi index increased 2.6%. However, refis are 26% lower than last year. Homeowners continue to take advantage of historically low interest rates to refinance their homes, either converting them from variable to fixed mortgages or cashing out to finance their buying habits. Editor's Note:
2. Global Energy Prices Headed Lower The U.S. Energy Department reports that global energy supplies will rise moderately in 2006 and that the slower demand expected to result from that could drive energy prices down for the rest of the year. In the Department's monthly forecast and short-term outlook, analysts say that crude oil should average $64 a barrel in 2006, down from its February forecast of $65. And on average, crude should cost $61 a barrel next year, according to the report. Right now, it is hovering at about $62 on the New York Mercantile Exchange. Analysts also say that retail gasoline prices are likely to average $2.42 a gallon this year - down from $2.45 in December - and should slide to $2.36 a gallon in 2007. "Non-OPEC oil supplies should rise by 900,000 barrels per day this year, up from 800,000 assumed a month ago," CBS Marketwatch reports. "Supplies are expected to increase from the Caspian region, Angola, Canada, Brazil and Mexico." Marketwatch also says experts anticipate that next year, oil supplies will rise by 1.6 million barrels a day - about the same rate seen in 2006. It is thought that refineries in Angola and the Caspian will substantially increase output. According to Marketwatch: "Expected global oil demand growth was cut by 100,000 barrels a day for both 2006 and 2007 … Demand is expected to rise by 1.5 million barrels this year and by 1.8 million in 2007." Supporting the Energy Department's forecast, the Energy Information Administration reported today that crude oil inventories soared by a whopping 6.8 million barrels for the week ending March 3. Expectations were for a 1.6 million-barrel increase in stockpiles.
This hefty surprise should push oil prices lower. And that's good news for your wallet! Editor's Note:
3. GM Dumps Pension Program Still mired in a dispute with union retirees over health-care costs, GM is now aiming at its white-collar employees. The car manufacturer announced that it is freezing its pension benefits program for salaried employees, replacing it with a 401(k) package. The embattled automaker is struggling to retain its stature as the world's leading automaker. But huge pension and health-care costs, declining SUV sales and heavy competition from European and Asian carmakers is pushing the company close to bankruptcy. In 2005, GM posted a loss of $8.6 billion, and according to a statement in the Detroit Free Press from board member Jerome York, the auto giant burns through $24 million every day. In addition, the company's debt was downgraded to junk status in May. Therefore, GM has embarked on a series of cost-cutting efforts, such as converting its defined-benefit pension plan to a 401(k) structure, which carries less liability for the company. Effective on the first of next year, GM's white-collar workers hired before 2001 will stop accruing future benefits from the traditional defined-benefit plan, but will instead receive a modified defined benefit. Employees who joined GM after Jan. 1, 2001 will stop accruing defined-benefit credits altogether and will be given 401(k) contributions from GM equal to 4% of annual base salary, according to the company. The move affects approximately 42,000 salaried workers at GM and will reportedly save the company about $420 million in pretax pension expenses. Editor's Note:
4. 'Mandatory' Savings for U.S. Citizens? With U.S. citizens posting a negative savings rate in February - the eighth time this has occurred in the last 10 months - cries for a mandatory savings plan are growing louder. Mandatory accounts are being suggested by many economists - most notably former Federal Reserve Governor Ed Gramlich. One proposal would require workers to set aside up to 3% of their earnings, placing it into a low-cost retirement account. According to certified financial planner Tony Proctor, founder of Proctor Financial in Massachusetts, this approach would solve two problems.
"Initially, this would help stem the decline in the personal savings rate, which fell below zero last year for the first time since the Great Depression. It would also help Americans bolster their retirement savings," Proctor says. He notes that the negative savings rate is a good indication that most people aren't putting enough away for retirement - which, with today's longer life expectancies, can now last for one-third of a person's lifetime. Mandatory plans would look like the personal accounts proposed by President Bush. They would offer a selection of super-low-cost index funds and would resemble the Thrift Savings Plan for federal employees. Unlike the Bush accounts, they would be funded with new savings - not diverted Social Security taxes. Economists say this arrangement would not force workers to decide whether they wanted a private account in exchange for reduced Social Security benefits. Gramlich, who left the Fed last year to become interim provost at the University of Michigan, has been lobbying for mandatory plans ever since he served on a federal commission appointed by President Bill Clinton to study the Social Security problem. And Gramlich has some reputable supporters. Pete Peterson, a Republican and senior chairman of the Blackstone Group, also favors mandatory savings accounts. In a 2005 interview with Harper's magazine, Peterson said, "We have reached a point in this consumption-obsessed country where, if we want people to save, we're going to have to make it mandatory."
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