The US labor market shows early signs of weakness with new round of layoffs & CEOs leaving at a record pace, consumer savings are depleted & non-mortgage debt service payments grows at a faster rate.
Thank you for such kind words. I am starting Week 8 since I started writing for the first time, after procrastinating severely for months and years on whether to start a substack or not. I have to admit, though, it is quite time consuming, but rewarding at the same time. Great work on building your substack too.
Very nice work. I would be interested in knowing what that debt servicing relative to income level is for different quintiles. If servicing burdens are unusually low for higher quintiles who tend to be older, and own their own homes or are locked in at lower rates they might be higher for younger people with high interest credit card debt or new mortgages. To that end while the overall debt service burden may look ok it might look much worse for a cohort more likely to spend a marginal dollar.
The other thing is while the absolute level of debt burden might be much less than the GFC the rate of change has been extremely steep, and rate of change is the kind of thing that will get consumers attention.
I also have to think we are running out of overspending from pent up demand during covid. Someone who took an extra vacation to treat themselves after 2 years of lockdown idiocy might revert to a more normal pattern.
Again though great overview of where we are right now.
Thanks Brett, I would love to see some data on debt service payments broken out by income and age groups, as well, as it will further solidify the case on some of the underlying weakness in consumer heath/balance sheet developing. I will keep an eye out if any of the private reports highlight such a data segmentation, because free sources on the Fed's database only goes so far. As for the Bank of America's credit report, they did highlight that lower income groups are taking out significantly higher credit card debt than higher income groups, and since these segment earns less, they are going to have to pay a higher interest payments relative to their incomes.
As for the overspending craze, I agree, I think the pent up demand phase is over with excess savings depleting amongst lower and middle income segments,. We can see that with "revenge" travel and also "aspirational luxury shopping" peaking. Thanks for your insightful comments. Really appreciate it.
We clearly need to forgive most of this consumer debt to avoid debt deflation and a recession. There is definitely no justification for the preditory lending that is credit card debt. The average interest rate on those is 27% which insane. We need to advocate for the government taking over the banking and credit sector.
Consumer debt, rising at the rate as it is today, is worrisome. Along with that, debt service payments rising relative to disposable income is a function of the rising interest rates. Should income fall due to a recession, we are most certainly going to see mass consumer loan defaults, as you have said. Certainly wont be a pleasant situation.
An official recession is announced after two quarters of negative GDP growth. So far, that is not the case, hence, officially there is no recession. However, there are underlying signs of weaknesses that we need to watch out for, like early weakness in jobs market, consumer delinquency rates or on the corporate side, things like commercial real estate, regional banks, etc. to monitor if a recession or credit event might shape to trigger a recession at some point soon.
Well, if there is a war-related inflation, the Fed and the commercial banks by law would be obligated to finance government deficits, which is inflationary. This is what we saw during the World War II times, when inflation and government deficit both ran high. Once the war ended, government spending deficit ended, inflation ended. Today's time is complicated, because government debt is already huge and higher interest rates are ballooning government interest payments. But, until a major event takes place, the Fed will keep rates high to bring inflation down to its target, even if that means triggering a recession.
Well, governments can always print as much money as they want in their own currencies, whereas a business or an individual can't. So, yeah, governments can print money out of thin air.
You rock!!
Thank you Jessica for your support.
It's impressive that you always come up with high quality content 4 times per week. Thanks for your time and dedication!
Thank you for such kind words. I am starting Week 8 since I started writing for the first time, after procrastinating severely for months and years on whether to start a substack or not. I have to admit, though, it is quite time consuming, but rewarding at the same time. Great work on building your substack too.
Very nice work. I would be interested in knowing what that debt servicing relative to income level is for different quintiles. If servicing burdens are unusually low for higher quintiles who tend to be older, and own their own homes or are locked in at lower rates they might be higher for younger people with high interest credit card debt or new mortgages. To that end while the overall debt service burden may look ok it might look much worse for a cohort more likely to spend a marginal dollar.
The other thing is while the absolute level of debt burden might be much less than the GFC the rate of change has been extremely steep, and rate of change is the kind of thing that will get consumers attention.
I also have to think we are running out of overspending from pent up demand during covid. Someone who took an extra vacation to treat themselves after 2 years of lockdown idiocy might revert to a more normal pattern.
Again though great overview of where we are right now.
Thanks Brett, I would love to see some data on debt service payments broken out by income and age groups, as well, as it will further solidify the case on some of the underlying weakness in consumer heath/balance sheet developing. I will keep an eye out if any of the private reports highlight such a data segmentation, because free sources on the Fed's database only goes so far. As for the Bank of America's credit report, they did highlight that lower income groups are taking out significantly higher credit card debt than higher income groups, and since these segment earns less, they are going to have to pay a higher interest payments relative to their incomes.
As for the overspending craze, I agree, I think the pent up demand phase is over with excess savings depleting amongst lower and middle income segments,. We can see that with "revenge" travel and also "aspirational luxury shopping" peaking. Thanks for your insightful comments. Really appreciate it.
Thanks for an excellent summary of the economy!
We clearly need to forgive most of this consumer debt to avoid debt deflation and a recession. There is definitely no justification for the preditory lending that is credit card debt. The average interest rate on those is 27% which insane. We need to advocate for the government taking over the banking and credit sector.
Consumer debt, rising at the rate as it is today, is worrisome. Along with that, debt service payments rising relative to disposable income is a function of the rising interest rates. Should income fall due to a recession, we are most certainly going to see mass consumer loan defaults, as you have said. Certainly wont be a pleasant situation.
Great text!! I like your style and your ideas
Thank you Victor, glad you liked it.
Your content is indeed outstanding. It is a great addition to my Substack reading list.
Thank you David for such encouraging words. It truly means a lot. 🙏🏽
Wonderful analysis of the current economic state. A great read as always.
Thanks Sanuj!! Really appreciate your feedback.
fantastic , great job! I love such thoroughly, prepared Newsletters , respect!
Thanks Hannah for your feedback. Really appreciate it.
An official recession is announced after two quarters of negative GDP growth. So far, that is not the case, hence, officially there is no recession. However, there are underlying signs of weaknesses that we need to watch out for, like early weakness in jobs market, consumer delinquency rates or on the corporate side, things like commercial real estate, regional banks, etc. to monitor if a recession or credit event might shape to trigger a recession at some point soon.
Well, if there is a war-related inflation, the Fed and the commercial banks by law would be obligated to finance government deficits, which is inflationary. This is what we saw during the World War II times, when inflation and government deficit both ran high. Once the war ended, government spending deficit ended, inflation ended. Today's time is complicated, because government debt is already huge and higher interest rates are ballooning government interest payments. But, until a major event takes place, the Fed will keep rates high to bring inflation down to its target, even if that means triggering a recession.
Well, governments can always print as much money as they want in their own currencies, whereas a business or an individual can't. So, yeah, governments can print money out of thin air.