Employment and Credit Update
Recent data continues to support the themes of labor market and household balance sheet improvement.
A CFO.com report on a recent Towers Watson study of compensation practices contains some bullish data for hiring and incomes:
Not only are salary freezes melting, but merit raises are making a comeback. On average those polled have budgeted 3% base salary hikes for every employee category, the most in three years.
The motivation for the strategy shifts is not so much employee retention as employee recruiting, says Laury Sejen, global practice leader, rewards, for Towers Watson. In 2008 and 2009, few companies had trouble attracting any type of employee. Now 54% report issues with finding enough people with critical skills, and 37% are encountering the same with finding both high performers and those with high potential. “There’s a sense now that you have to be broadly competitive on base salary levels because the market has started to move again,” says Sejen.
The Fed’s latest G19 data shows that revolving credit (primarily consumer credit, such as credit cards) continues to decline, down 6.4% in January following a brief uptick in December. However, non-revolving credit (defined as “automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations,” both secured and unsecured) was up an eye-popping 6.9%. Because there’s more of the latter outstanding, the net increase in January (seasonally adjusted) was 2.5% annualized.
One can argue whether a net bump in non-revolving consumer credit represents a healthy trend, but insofar as there’s a corresponding asset involved (for everything other than vacation loans) while revolving credit continues to contract, we think it’s favorable for both household balance sheets and the economy.
Interestingly, the new car loan data indicates an average annualized increase of 3.3% in total purchase price since 2006. It’s impossible to say without more detailed data on models and dealer incentives, but if buying habits are comparable and that trend continues, it would argue against a deflationary scenario. In any case, both of these reports lend support to the view that the current economic cycle and stock market rally have a ways to go yet.
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News and Views | art March 7, 2011 | 
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