Consumption keeps the economic engine humming...
Consumer spending drives growth in the U.S. After all, it makes up about two-thirds of our overall economic activity.
Most folks think there's a big problem with consumption right now, though... Ask anyone, and they'll tell you the American consumer is on his last legs.
Many Americans received hefty payouts during the pandemic. But they've spent a lot of that stimulus along the way. And now, they're turning to another source to keep that spending going: credit cards.
Credit-card debt recently topped $1 trillion. That might sound scary. But it's not. The situation isn't as extreme as you might think – once you look at it the right way. And that means the American consumer isn't about to disappear just yet.
Let me explain...
It all seems like bad news at a glance... Consumers are racking up credit-card debt. And they're doing it at the worst possible time.
Soaring interest rates have pushed the typical rate on a credit card above 21%. That's the highest level on record and up from just 14.6% early last year.
Higher rates mean debt is even more expensive to maintain. And that makes the massive rise in overall credit-card debt that much more concerning.
The pace of the recent hike has been impressive, too. Take a look...
Overall credit-card debt has jumped nearly $300 billion over the past two and a half years. That's almost a 40% increase. For comparison, we saw a total increase of just 23% over an entire decade from 2011 to 2021.
Combine that rapid rise with the break above the trillion-dollar level, and it's no wonder folks are worried. But you won't learn much from analyzing debt alone...
You've got to look at assets, too.
That's why I examined the asset side of the equation a few weeks ago. We looked at personal-sector checkable deposits – the cash that regular folks have on hand.
That number is near $5 trillion today. And once you realize this, the $1 trillion in credit-card debt becomes easier to stomach.
Relative to credit-card debt, folks have more cash on hand today than at almost any other time since the turn of the century. Check it out...
The chart shows the total credit-card debt divided by personal-sector checkable deposits. It's basically debt divided by cash. And at just 21%, this is near the lowest debt load we've seen since 2000.
In other words, consumers hold a record amount of credit-card debt today. But they've got more than enough cash lying around to handle it.
Heck, credit-card debt could double from here, and most folks would still be doing just fine compared with history. When you realize this, the debt "problem" doesn't seem so scary after all.
These conditions can change, of course. But for now, American consumers are still in good shape. They've got plenty of money to keep driving the economy. And until that changes, there's no good reason to expect a major economic slowdown.
Good investing,
Brett Eversole
Further Reading
"Consumers won't stop chasing the latest experiences," writes Sean Michael Cummings. Americans have been willing to shell out big bucks to participate in unique cultural events – whether it's concerts or blockbuster movies. And that's a big win for the U.S. economy... Read more here.
Recession fears have been at the forefront of many investors' minds in recent months. And yet, the economy is chugging along. One big reason is that the American consumer is flush with cash – so much so, the numbers might surprise you... Learn more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Moody's (MCO)... credit-ratings firm
Visa (V)... payment-processing giant
Meta Platforms (META)... social media giant
Amazon (AMZN)... online-retail king
Microsoft (MSFT)... tech giant
Nvidia (NVDA)... chip giant
Broadcom (AVGO)... semiconductors
IBM (IBM)... computers
Adobe (ADBE)... cloud services
Zscaler (ZS)... cloud security
Uber Technologies (UBER)... ride hailing
Hilton Worldwide (HLT)... hotels
Chipotle Mexican Grill (CMG)... tacos and burritos
Ross Stores (ROST)... "everything" stores
Williams-Sonoma (WSM)... cookware and decor
Abercrombie & Fitch (ANF)... apparel
General Electric (GE)... manufacturing
Ingersoll Rand (IR)... manufacturing
Motorola Solutions (MSI)... telecom
NEW LOWS OF NOTE LAST WEEK
Bristol-Myers Squibb (BMY)... pharmaceuticals
Agilon Health (AGL)... management-services organization
Franco-Nevada (FNV)... gold royalties
