It Can Reduce the Economy to Reduce Consumers | So Good News


Sometimes life would be easier if everyone was like Keanu Reeves:

But sometimes you can’t help yourself:

I’m choosing door #2 today. I’m sorry, Keanu.

I’ve seen this chart variation happen for a few weeks now:

On the face of it, it seems scary and obvious.

During the pandemic, people’s savings skyrocketed while credit card debt plummeted. Now the opposite is happening when savings rates go down while credit card debt goes up.

The buyer is crushed. The case is closed. Right?

I am sorry to inform you that this is a first degree misdemeanor.

First things first, we are comparing stocks and waves in this chart. Forgive me for the nerdy wording but assets refer to the amount of a number at one time (in this case credit card debt) while outflow refers to the amount measured over time (in this case savings).

So we’re trying apples and oranges here.

And since we’re measuring stock levels and trends, these numbers don’t tell us anything unless you have a matching indicator.

Obviously, it’s not a good thing that a person’s savings rate has fallen so much, but there are a number of reasons that can help explain why it’s happening.

Inflation is a logical explanation. People are saving less because money has gone up.

But it is also true that US families saved more money during the pandemic because they spent less and more people received government assistance. Now they are spending a lot of money to make up for lost time.

The Wall Street Journal estimates that there is still something between $1.2 to $1.8 trillion in excess savings (that’s more savings than households would have expected to save had the pandemic not happened):

The best opinion from experts is that it will take 9-12 months for people to spend more money.

It’s not good people are saving a little especially if we are going to have a financial crisis in the coming year, but there is still a lot of dry powder on the housing management paper.

And if inflation continues to fall, this could help to bring back savings.

High credit card debt is no longer common sense, but this one isn’t unusual if you only spend a little.

The New York Fed produces a quarterly report on household debt over time that shows that the situation is not as good as it seems:

Most consumer loans always come in the form of mortgages, which make up more than 70% of all loans. Credit card debt by the end of the third quarter was only 6% of all home loans.

Do you know that credit card debt history is related to total debt?

It’s 6%.

So we are on average. In fact, credit card debt has held steady at about 6% since 2010. It was as high as 10% of total debt in 2003.

And if you look at credit card rates back then you can see that we’re just past the pre-pandemic level:

Credit card debt is the worst debt out there. But people aren’t just taking out high-interest loans.

Just take a look at credit card fraud rates:

They are falling.

Or what about closings and refunds – which are under the old conditions:

Consumer debt as a percentage of income is rising but remains historically low:

Good times for consumer spending don’t last forever.

In the end, people will spend more of their money from this epidemic. Many have probably already done so.

But we love wasting money in this country. I don’t see people just wasting their money and sitting idly by.

Things have slowed down a bit in recent months, but even after adjusting for inflation, retail sales are still higher than they were before the pandemic:

I think credit card debt will continue to pile up after all payments are made.

As long as the job market remains strong, most families will be fine going to restaurants, going to Disney and filling up airports.

It may take a recession to slow down consumers.

Further reading:
Was the Consumer Overprepared for the Recession?


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