CAMS Weekly View from the Corner - Week ending 2/2/24
February 5, 2024
The topics to cover for these editions in recent weeks and months have been so plentiful and varied that it has been challenging to give some their due in light of other more pressing topics. We have tried to tie various subjects together to both show how they intertwine as well as to cover a few at the same time.
This past week takes this to an even higher level with a near avalanche of economic releases and topics to consider.
Dating back a few weeks ago there was a stand-out item that resurfaces consistently within our in-house market/econ discussions.
We are talking about debt generally – now there’s a topic eh. No matter where we look the debt storyline is off-the-rails and few seem to be even remotely concerned. History offers concerns do not show up until there is an “oh oh” moment and then any attempt at proactive measures are long lost to the immediate necessity to react.
Like anything in life it seems when proactive measures are lost to reaction the end results will be comparatively worse and usually sow the seeds of even more downstream issues. This is exponentially true when it comes to economics.
A couple of months ago we offered an interactive chart where we attempted to bring a few topics into one intertwined storyline. It covered average earnings for employees, price inflation, consumer debt with a focus on revolving debt, i.e. credit cards.
The point back then was the out of hand credit card debt usage by the citizenry and called into question if this was a necessary but lesser evil approach to running household finances in light of the price inflation issue whereby price inflation adjusted earnings had actually been negative for a couple of years-plus. If earnings cannot keep up with price inflation the “relief valve” is the relatively easy to reach for credit card.
Both the 12 month and the broader 2-plus years of accumulated credit card debt was like nothing we had seen before. With the most recent release, at the time of the referenced previous edition, the monthly addition of accumulated credit card debt had dried up notably.
We offered idle speculation that perhaps the 20-plus percent interest rates coupled with maxed out credit lines played a role. We now laugh at ourselves with said idle speculation with the most recent update of this debt category.
The most recently updated came in at a mind blowing $19.1 billion in additional credit card debt in one 30 day cycle!
For perspective, dating back to the late 1960’s, this is right up there with the highest ever one month increases, most of which have occurred during our current price inflation era. Below we offer a visual.
The above is a 10 year bar chart to offer some recent historical perspective. Each bar represents one month. The far right is our aforementioned $19.1 billion addition to the cumulative credit card debt total which by-the-way now stands at an astounding $1.31 trillion.
For context our red horizontal line notes what an outlier our most recent monthly accumulation is as only two other months in the depicted decade long chart exceed it.
Our red circle encapsulates the bulk of this price inflation era when the majority of this time wage growth rates were negative when adjusted for price inflation. Note the consistently high numbers within our circle when viewed through the lens of the entire decade depicted.
Is This Economic Desperation or the Flip Side – Unbridled Confidence?
Along the path of the recent avalanche of economic inputs to consider the Conference Board released its well recognized Consumer Confidence Index results. Below we excerpt their key findings.
US Consumer Confidence Increased in January
Tuesday, January 30, 2024
The Conference Board Consumer Confidence Index® rose in January to 114.8 (1985=100), up from a revised 108.0 in December. The reading was the highest since December 2021, and marked the third straight monthly increase. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—surged to 161.3 (1985=100) from 147.2 last month.
We have offered the massive accumulation of debt generally and credit card debt specifically was a life raft if you will as households offset their lack of price inflation adjusted wage growth rates to assist in keeping up with overall price increases.
Frankly this seems odd to offer with a simultaneous notable increase in consumer confidence readings.
The above Confidence Index was the highest we have seen since December of 2021 when the free money policies post-Covid still had many a coffers filled to the brim. In addition, the above results marked the 3rd straight monthly increase in this Consumer Confidence Index.
Furthermore, the gain in confidence was seen across all age groups and income groups with the exception of top income earners where there was a slight dip in confidence. Overall, this is leaning into a trend.
With the reducing growth rate in price inflation coupled with continued increasing wage growth rates we have recently seen wages, when adjusted for price inflation, turn positive. Depending on what wage rates we look at offers a different degree of positive growth but we can say now across-the-board wages are positive, albeit minimally by some measures, when adjusted for price inflation and this is playing a role with increased confidence.
If we continue to see positive price inflation adjusted wage growth rates as a consistent trend - not just a few month’s storyline - it will be interesting to see how the Consumer Debt figures unfold in particular Credit Card debt.
Will the citizenry begin to pull back on the reigns of this type of debt even as their overall Consumer Confidence builds or will they power through with the increased confidence and continue to use this type of debt under the view: “Times are good bring on more debt bring on more consumption – we’ll pay the bill later…..”
This week we will see an update on Consumer Debt figures to include Credit Cards.
With the above we have to ask, yet again, why are we talking about interest rate cuts?
Trending Consumer Confidence, or to use the Conference Board’s language, “…….based on consumers’ assessment of current business and labor market conditions the Present Situation Index surged to 161.3 from 147.2 last month.”
Wages are growing on a price inflation adjusted basis, employment is growing, Unemployment Claims are non-existent when viewed through a historical lens, Confidence is trending, price inflation is improving but remains north of the Fed’s stated target, the government is stimulating with massive deficit financing as well as pushing through tax cut discussions for families and businesses and GDP growth has come in stronger than expected.
Is it urgently necessary to add monetary policy stimulus to this general economic storyline which will increase the risk of a resurging price inflation landscape which will only burden everyday households further just as there are early signs of much needed improvement with their price inflation adjusted wage growth rates?
For interest rate trader’s part they have all but nixed the March rate cut which just a few weeks ago, via collective expectations, was a certainty. If the economic landscape continues to reflect what we have seen in recent weeks/months it would be leaning into if not outright lunacy to add monetary policy stimulus to this general landscape.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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