Despite good or better job loss numbers and real estate trends, there are still worrisome indicators in the economy. One lagging problem is the tight lending market which has helped fuel a string of business bankruptcies.
New research from the Federal Reserve indicates that consumer lending shrank 1.7 percent in October. The data, calculated by the Fed, show a $3.5 billion decline. The decline caps a 4% drop in consumer lending from its July 2008 peak. Over the past two years the corporate and consumer credit markets have shrank by 7%, or $1.5 trillion.
Today Fed Chairman, Ben Bernanke, told members of the Economic Club of Washington D.C. that the economy shrank this year because demand dropped prompting a slowdown in manufacturing. This led to layoffs and higher unemployment.
“By the middle of this year, however, inventories had been sufficiently reduced to encourage firms in a wide range of industries to begin increasing output again, contributing to the recent upturn in the nation’s gross domestic product (GDP),” the Chairman said.
Consumer spending has risen since midyear. Bernanke said that only part of that uptick is due to the “Cash for Clunkers” program. Businesses are also spending more. “In the business sector, outlays for new equipment and software are showing tentative signs of stabilizing, and improving economic conditions abroad have buoyed the demand for U.S. exports,” Bernanke reported.
The US economy is not out of the woods yet. “In sum, we have come a long way from the darkest period of the crisis, but we have some distance yet to go,” the Federal Reserve Chairman concluded.
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Hopefully things turn around. The Fed is constantly looking out for the big banks that own the Federal Reserve. Rather than using the TARP money to extend credit to the consumers and businesses, the banks used it to buy the assets of non-member banks. How scandalous.