Is the consumer ready to come off life-support?

The simple answer is no. However,  we are starting to see the first tantalizing signs that the financial health of the American consumer may be starting to improve. After analyzing 7.5 million credit files from Equifax, Mark Zandi chief economist at Moody's found that delinquencies for credit cards, mortgages and other consumer debt declined in June by almost 1.1 million compared with levels three months earlier. In Saturday's Wall Street Journal,  Zandi was quoted as saying "I feel very confident we are at a turning point. Household credit conditions are set to improve significantly by this time next year."

Of course, we aren't completely out of the woods. Quoting from the same WSJ article:

In fact, the total number of seriously delinquent borrowers and those in default will keep rising for some time, as borrowers who are 30, 60 and 90 days delinquent move to the next phase of delinquency. Overall, household liabilities in delinquency and default rose to $1.15 trillion in June, 10% of total liabilities, according to Mr. Zandi's analysis of the Equifax data. The delinquency and default rate in June was up from 8.96% in March and 8.01% in December.

Still, the appearance of a delcine in new delinquency rates means that the flow of new bad loans may be slowing. If such is the case, the pessimists may be surprised by how rapidly bank balance sheets improve.