News & Events

Economic Advisor: September 13, 2017
September 13, 2017


 

A major hack threw the world of credit rating into disarray, while consumer credit grew, and historic weather threw off weekly layoff numbers.

Equifax

The biggest economic and financial headline to hit last week was the revelation that hackers had compromised the records of credit reporting bureau Equifax, gaining access to data on at least 143 million Americans. Hackers could have gotten access to sensitive information such as driver’s licenses and Social Security numbers.

“This is about as bad as it gets,” said Pamela Dixon, executive director of the nonprofit World Privacy Forum, in a public statement. “If you have a credit report, chances are you may be in this breach. The chances are much better than 50 percent.”

To make matters worse, Equifax’s handling of the situation raised serious concerns among consumers and credit industry experts. For example, the agency offered to provide a free credit monitoring service, but consumers and journalists quickly noticed that the offer’s fine print blocked participants from taking any individual or class legal action against Equifax. Also, while Equifax discovered the breach on July 29, it didn’t announce it until September 7. Moreover, three senior executives from Equifax unloaded $1.8 million in shares shortly after the July 29 discovery.

The net effect is that consumers are contacting Equifax, Experian and TransUnion in droves to freeze their credit, but no one is quite sure — at least for the moment — what will be the fate of Equifax.

“You cannot fire the three credit bureaus,” Rohit Chopra, a previous assistant director at the Consumer Financial Protection Bureau who is now a senior fellow at the Consumer Federation of America, told the New York Times. “Credit reporting agencies are the plumbing of our financial system but are much less regulated than many banks.”

Consumer Credit

In related news, consumer credit grew 5.9 percent in July to hit a total of $3.75 trillion, according to last week’s report from the Federal Reserve. The big gains were in non-revolving debt, such as car and student loans, which increased 6.9 percent to hit $2.75 trillion. Revolving debt, such as credit cards, grew 3.2 percent to hit $994.5 billion.

Consumer credit is an important indicator to monitor because it shows consumer willingness to use credit to get what they need. Given that consumer spending drives roughly 70 percent of the economy, that increased confidence in using credit points to more economic growth.

Initial Jobless Claims

Hurricane Harvey wildly skewed the most recent lay-offs report. First-time claims for unemployment benefits filed by the newly unemployed during the week ending September 2 shot up to 298,000, a massive increase of 62,000 claims from the preceding week’s total of 236,000, according to numbers released last week by the Employment and Training Administration. This would put the report at a more than two-year high, but again, these numbers were skewed according to the Administration.

The four-week moving average — regarded as a more reliable measure of initial jobless claims — was thrown as well, hitting 250,250 claims, a surge of 13,500 claims from the prior week’s average of 236,750. Despite the storm, this marked the 131st week in which initial claims were below the 300,000-claim level, which economists consider is an indicator of a growing job market.

This week, we can expect:

  • Wednesday — Producer Price Index for August from the Bureau of Labor Statistics.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; Consumer Price Index for August from the Bureau of Labor Statistics.
  • Friday — Retail sales for August and business inventories for July from the Census Bureau; industrial production and capacity utilization for July from the Federal Reserve; consumer sentiment for September from the University of Michigan Surveys of Consumers.

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