Sunday, November 24, 2019

A Healthy Consumer A Positive For The Economy

The consumer is an important part of the economy as the consumer segment accounts for nearly 70% of GDP. As the current economic expansion continues to extend its record run in terms of length month after month, looking for excesses or bubbles is certainly warranted. However, one area that seems in decent shape is the consumer, yet some recent commentary seems to have some doubt with a focus on the growth in personal loan debt. This recent focus on the consumer can be seen in the chart below that shows the increased frequency of Google Trends searches on the term "strong consumer."

One recent article appeared in the The Washington Post, Personal loans are ‘growing like a weed,’ a potential warning sign for the U.S. economy. The article notes personal loans are up 10% from a year earlier. However, as the economy grows and as consumer incomes grow, a consumer's ability to service this debt is maintained or improved. As the below chart shows, the broader Financial Obligations Ratio remains at near a 40 year low at 15.0%.

Looking at household debt as a percentage of the economy or GDP is also useful. The below chart shows household debt levels as a percentage of GDP and debt levels as a percentage continue to trend lower and remain much improved over the pre-financial crisis level. Certainly government level debt is another issue, but the consumer's debt position remains healthy.

Looking at delinquency rates, the next two charts detail delinquency rates for all consumer loans with the second chart comparing delinquency and chart off rates for credit cards. Both charts are not pointing to a consumer in distress.

Consumer debt has grown; however, their ability to service it is much improved over the pre-financial crisis level figures. The consumer does appear to be in a strong position and this should lead to continued growth in the economy, all else being equal.

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