U.S. Consumers Seen Facing ‘Liquidity Squeeze’: Chart of Day

Bloomberg
U.S. Consumers Seen Facing ‘Liquidity Squeeze’: Chart of Day
By David Wilson

Dec. 1 (Bloomberg) -- U.S. consumers are headed for a “liquidity squeeze” as banks grow more reluctant to provide mortgages and shrink credit-card lines, according to Meredith Whitney, an Oppenheimer & Co. analyst.

“A new era in the overall financial landscape” is unfolding in which many households will have to cut debt, she wrote in a report today.

The CHART OF THE DAY displays two indicators of consumer indebtedness, the amount of mortgage loans outstanding and credit-card lines from commercial banks. Both reached plateaus this year as housing prices dropped and unemployment rose.

“The entire mortgage market hit a wall,” Whitney wrote, adding that home loans probably fell last quarter. There hasn’t been a drop since the second quarter of 1982, according to the Federal Reserve data cited in the chart. The Fed will release third-quarter figures later this month.

Whitney also projected that banks will reduce unused credit- card lines by 45 percent during the next 18 months. That works out to $2.13 trillion, based on the total credit lines available from all lenders insured by the Federal Deposit Insurance Corp. as of June 30, according to the report.

“We are now beginning to see evidence of broad-based declines in overall consumer liquidity,” she wrote. Along with a rising jobless rate, the reductions will bring “a pronounced downshift in consumer spending.”

Last Updated: December 1, 2008 12:08 EST