“All I can say is thank goodness for the rise of the Asian consumer as they are now the consumer of last resort,” said Jonathan Pain early this week. He’s the chief investment strategist of hedge fund HFA. Mr. Pain sees what should now be quite clear to everyone with a brain: the subprime credit-crunch is leaking over into America’s economy via layoffs. People who lose jobs tend to spend less money.
America’s consumer economy and housing economy were linked in many ways, through home-equity lines of credit, through employment in real estate, mortgage lending, construction, and household furnishings. If it’s not already in recession, it won’t be long. The layoffs in the pipeline from the housing bust are going to put a serious dent in American consumption. And that dent won’t be restored by credit-card borrowing. Lenders are doubly wary.
Just how many jobs are we talking about? “Since the start of the year,” reports Forbes magazine, “more than 40,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.”
While it’s possible the whole world will go down with the American consumer, we’d expect to see a transition. Who has money? The savers of Asia. Those Asian savings grow in purchasing power as the value of the US dollar declines (as it surely will when the Fed bows to market pressure and cuts rates in the next three weeks). Australia’s resource industry is counting on the rise of the Asian consumer.
Markets and Money