US Dollar Slips as Consumer Credit Falls By Record, Non-Farm Payrolls (NFPs) Expected to Fall By 500K or More

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US Dollar Slips as Consumer Credit Falls By Record, Non-Farm Payrolls (NFPs) Expected to Fall By 500K or More

The US dollar fell versus most of the major currencies on Thursday, save the Australian dollar, as consumer credit fell by the most in at least 65-years and continuing jobless claims reached a new 26-year high. According to the Federal Reserve, consumer credit in the US fell for the second consecutive month by a record $7.9 billion in November.

More specifically, non-revolving debt, such as auto or student loans, tumbled by $5.2 billion and revolving debt, such as credit cards, declined by $2.8 billion. Overall, this highlights a shift in attitude amongst Americans away from the feeling that they could spend freely on designer goods with the help of credit cards toward a far more risk averse sentiment in which consumers opt to pay down debt and spend conservatively. Ultimately, this will be a negative for high-end retailers and stores that do not have the ability to offer deep discounts, as they essentially performed well only when consumers had no inclination to save.

Meanwhile, US initial jobless claims fell by 24,000 during the week ending January 3 to 467,000, but as we mentioned last week, employment reports for the last two weeks of 2008 should be ignored as the closure of government offices on the holidays, such as New Year's Day, skew the numbers. However, this makes the results of the count of continuing jobless claims even worse, as they rose by 101,000 to a fresh 26-year high of 4.611 million during the week ending December 27 despite the fact that fewer people would be able to file claims. This does not bode well for tomorrow's releases at 8:30 ET, as US non-farm payrolls (NFP’s) are forecasted to fall for the twelfth straight month in December at a rate of -520,000.

Something that is garnering even more attention though is the rise in the unemployment rate, which is predicted to match the June 1993 high of 7.0 percent from 6.7 percent. Results in line with or worse than expectations would suggest that consumption, and growth in general, will continue to wane throughout 2009, and could weigh on the greenback.

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