Signs of weakness with new rounds of layoffs, CEOs leaving at a record pace, consumer savings depleting, and non-mortgage debt service payments growing.
Amrita Roy's insightful analysis of the US economy's current state delves into the resilience of the labor market, the dynamics of consumer savings, and the concerning rise in household debt. The juxtaposition of nominal wage growth against inflation, the impact of gig jobs on millennials and GenZ, and the disproportionate effects of excess savings drawdown across income groups paint a nuanced picture. As household debt hits record levels, especially in credit card balances for lower-income households, the potential threat to consumer well-being becomes evident. The critical question of whether consumers can pay back this rising debt is explored through the lens of debt service payments relative to disposable personal income. Roy's examination serves as a timely reminder to keep a vigilant eye on evolving economic indicators, even in the face of a seemingly robust economy. What are your thoughts on the potential risks and precautions to be taken in this economic landscape?
Thanks Joshua for such an insightful comment and your question. I probably should write a separate post to answer your question, but at a high level, rising consumer credit in an environment where the labor market is cooling is never encouraging, but a a broader level, US consumers are long term optimistic about the labor market. I am too, and therefore, even if we have a slowdown or an official recession, it will be mild and shallow. I think the bigger problem for this decade would be one of inflation, with current projections of government deficit spending, which will continue to add upward pressure on inflation and interest rates. And while a sizable chunk of corporate America had gotten their debt refinanced at lower rates, which do not come due for some time, it is the smaller caps that stand at a real danger of not being able to refinance at current rates and growing bankruptcies as a result. I would be also curious to study the private credit landscape as well to understand the nuances.
Your review of debt levels through time and the current relationship of personal debt to income level was very informative. I think its unfortunate that so many people do not have the financial resources to pay off their credit card debt in a timely manner; but (at a selfish level) their misfortune has certainly helped me achieve great returns on my Visa stock holding.
This was a helpful summary. Thanks Amrita.
You are welcome David. Glad you enjoyed it.
Amrita Roy's insightful analysis of the US economy's current state delves into the resilience of the labor market, the dynamics of consumer savings, and the concerning rise in household debt. The juxtaposition of nominal wage growth against inflation, the impact of gig jobs on millennials and GenZ, and the disproportionate effects of excess savings drawdown across income groups paint a nuanced picture. As household debt hits record levels, especially in credit card balances for lower-income households, the potential threat to consumer well-being becomes evident. The critical question of whether consumers can pay back this rising debt is explored through the lens of debt service payments relative to disposable personal income. Roy's examination serves as a timely reminder to keep a vigilant eye on evolving economic indicators, even in the face of a seemingly robust economy. What are your thoughts on the potential risks and precautions to be taken in this economic landscape?
Thanks Joshua for such an insightful comment and your question. I probably should write a separate post to answer your question, but at a high level, rising consumer credit in an environment where the labor market is cooling is never encouraging, but a a broader level, US consumers are long term optimistic about the labor market. I am too, and therefore, even if we have a slowdown or an official recession, it will be mild and shallow. I think the bigger problem for this decade would be one of inflation, with current projections of government deficit spending, which will continue to add upward pressure on inflation and interest rates. And while a sizable chunk of corporate America had gotten their debt refinanced at lower rates, which do not come due for some time, it is the smaller caps that stand at a real danger of not being able to refinance at current rates and growing bankruptcies as a result. I would be also curious to study the private credit landscape as well to understand the nuances.
Well written! Thank you!
Glad you enjoyed the post.
Your review of debt levels through time and the current relationship of personal debt to income level was very informative. I think its unfortunate that so many people do not have the financial resources to pay off their credit card debt in a timely manner; but (at a selfish level) their misfortune has certainly helped me achieve great returns on my Visa stock holding.
Glad you enjoyed the post.