Household debt combined with falling home prices have been more toxic to the economy than previously believed. This is not just true in the United States, according to new IMF data. The problem applies to other developed nations as well, according to the agency’s April 2012 World Economic Outlook titled “Dealing with Household Debt.” High on the list of other countries that face the headwind are Iceland, Ireland, Spain and the United Kingdom. Many experts previously believed that the drop in home prices caused the recently past and current economic problems. The IMF says otherwise. Households may have “deleveraged” but not enough. The suggestions from the report are detailed and specific. They are also sensible. They assume, however, that federal governments will take a chance by investing in a sort of stimulus. In a world marketed by austerity, that is not likely to happen. The agency comments:
Government policies aimed at reducing a household’s debt relative to its assets — and its debt service payments relative to its income — could be an inexpensive way to mitigate the negative effects of household deleveraging on economic activity. Such policies are particularly relevant for economies today that have limited scope for expansionary macroeconomic policies and in which the financial sector has already received government support. Bold and well-designed household debt restructuring programs such as those implemented in the United States in the 1930s and in Iceland today can significantly reduce the number of household defaults and foreclosures. That helps prevent downward spirals of declining house prices and lower demand. Once the mortgages are restructured to be more affordable, their market value rises, and the government can sell them, using the revenue to offset the initial cost to the taxpayer.
Lumia 900 Flaw
Troubled handset maker Nokia (NYSE: NOK) cannot get a break. Its alliance with Microsoft (NASDAQ: MSFT) was supposed to allow it to produce attractive new smartphones meant to help it claw back share from new leaders Samsung and Apple (NASDAQ: AAPL). Many reviews of Nokia’s new Lumia 900 were unexpectedly positive. Nokia has just announced that the Lumia model has a major flaw. Software glitches in the smartphone can cause it to disconnect from wireless networks in way that disrupts data flow. Nokia smartphone unit chief Jo Harlow and Nokia U.S. chief Chris Weber said in a joint statement:
A memory management issue was discovered that could, in some cases, lead to loss of data connectivity. This issue is purely in the phone software, and is not related to either phone hardware or the network itself.
Suddenly the launch of the product in the U.S. is all but doomed.
Auto Sales in China
China is supposed to be the market that gets the global car industry back on its feet after the losses caused by three years of recession. The Chinese market, which produced 18 million car and light truck sales, is also supposed to be large enough to offset a slowing of sales in Europe. Those pieces of conventional wisdom were battered today by more evidence that the growth of the Chinese vehicle market has ended for now. Sales moved higher by only 4.5% in March to 1.4 million, and the first quarter total was down by 1.3%, according to the China Association of Automobile Manufacturers. Most of the blame was put on an economy that is no longer in hypergrowth and high fuel prices. Rosy forecasts by global manufacturers also are likely to be undermined by General Motors’ (NYSE: GM) and Volkswagen’s powerful market shares, which will be hard to overcome even if the market was growing.
Tablet PC Sales
Tablet PC sales will reach 119 million units this year, according to research firm Gartner. Apple is by far the dominant player in the market, and Gartner forecasts that will be the case for at least four more years. By that point, tablets powered by Google’s (NASDAQ: GOOG) Android OS will begin to catch up. One of the problems the industry will face, even then, is Apple’s ability to retain high retail prices compared to competition, which balloons its gross margins. Gartner’s new research predicts that:
Worldwide media tablet sales to end users are forecast to total 118.9 million units in 2012, a 98 percent increase from 2011 sales of 60 million units. Apple’s iOS continues to be the dominant media tablet operating system (OS), as it is projected to account for 61.4 percent of worldwide media tablet sales to end users in 2012. Despite the arrival of Microsoft-based devices to this market, and the expected international rollout of the Kindle Fire, Apple will continue to be the market leader through the forecast period.
Douglas A. McIntyre
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