Also at MLW
Today is the first day of the last quarter of 2005. Economically, it could be a very difficult quarter. There are several fundamental problems underneath the US economy's surface that may start to become more visible as the quarter progresses.
Recently, the Federal Reserve issued the
consumer credit numbers. They indicated debt is still rampant. The debt service ratio -- ratio of debt payments to disposable personal income - hit an all time high. 13.55% of all income after payment of expenses etc... went to paying debt. This is already starting to show in
credit card delinquencies.
The percentage of overdue U.S. credit card accounts jumped to a record in the second quarter as gasoline prices surged, the American Bankers Association said.
The share of delinquent credit card accounts rose to 4.81 percent during April to June from 4.76 percent in the prior three months, the group said today. The first-quarter figure was revised up from 4.03 percent. The previous record of 4.43 percent was set in the fourth quarter of 2003.
Energy prices will most likely have a very negative impact on this number. As of this writing, a large percentage of gulf oil production is still off line
These evacuations are equivalent to 59.95% of 819 manned platforms and 26.87% of 134 rigs currently operating in the Gulf of Mexico (GOM).
Today's shut-in oil production is 1,478,780 BOPD. This shut-in oil production is equivalent to 98.59% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.
Today's shut-in gas production is 7.979 BCFPD. This shut-in gas production is equivalent to 79.79% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.
The cumulative shut-in oil production for the period 8/26/05-9/29/05 is 39,360,557 bbls, which is equivalent to 7.189% of the yearly production of oil in the GOM (approximately 547.5 million barrels).
The cumulative shut-in gas production 8/26/05-9/29/05 is 188.540 BCF, which is equivalent to 5.165% of the yearly production of gas in the GOM (approximately 3.65 TCF).
In other words, over 50% of gulf rigs are still unmanned, and a little over 7% of gulf production has been lost for the year. Before the two hurricanes, oil refineries were operating over 95% capacity, meaning oil companies cannot simply shift production to other facilities. As a result, of shut-in capacity and production, prices for fuel derivatives' futures are at least over 40% than they were last year. Across the Northern US, numerous news agencies have warned of a winter fuel crunch.
December could possibly be a terrible month for several reasons. First, consumers will then be experiencing a second or third month of fuel price spikes (both gasoline and heating) going into the all-important holiday shopping season. Retailers make near 50% of their profits from holiday sales. And consumer confidence is already low, dropping the most in 15 years this month. These three factors - consumer confidence, high energy prices and retailers dependence on holiday shopping for a large percentage of profits -- could combine to create a bad holiday season for retailers.
December will also be the last month of international trade deficit reports, which also stand to be near record levels this year. The trade deficit was 495 billion in 2003, 617 billion in 2004 and currently stands at 404 billion with 5 months of reports left. With the dollar at strong levels in the forex markets it is doubtful this number will dramatically improve. For another year, the US will consumer more than it produces. At some point, this global imbalance will need to correct.
In conclusion, a lot of problems could come home to roost in December. Most of this scenario centers around energy prices. The longer gulf refining stays off line, the higher the probability of energy prices remaining elevated for the winter. This will squeeze the consumer whose confidence is already low, lowering consumer spending in the 4th quarter when retailers make a large portion of their profits. This is dangerous for the economy because consumer spending is responsible for 2/3 of US GDP growth. Finally, there is the trade deficit, which stands a good chance of once again setting a record. In short, this could be a very bumpy quarter.