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Is The Consumer In Us Stretching Too Far Again?

CAMS Weekly Views from the Corner – Week Ending 8/25/2017

August 28, 2017

Asked another way:  Is the wage earner in us stretching too far again?

We all wear multiple hats which bring labels such as the consumer in us as well as the wage earner in us.  At a minimum some form of income occurs in order for us to put on our proverbial consumer hats.

For my part, in recent years and even months, I have heard from various sources how both the consumer in us and the wage earner in us are stronger.  Whenever I hear this, in particular over the last two years let’s say, certain data points arise in my mind that question the shared opinion.

Disposable Personal Income

One that is front-and-center is the above multi-decade chart that comes to us courtesy of Ron Griess over at The Chart Store.  The lower pane is our focal point.  This takes the average amount of consumer debt and measures it as a percentage of Disposable Income.  (Disposable Income is the amount of our income that we have left after taxes are accounted for.)

Looking to the right of the chart we see how this measure has trended consistently higher reflecting ever higher consumer debt levels compared to the disposable income we have to service the consumer debt.  More concerning is how we have easily surpassed this measure’s high point leading into the Great Recession of 2008/09.

Structurally speaking, has the collective consumer in us gotten stronger – post Recession – from the important perspective of our Disposable Income relative to our acquired Consumer Debt levels?  This data offers we have become more stretched than any time in the previous 60 years.

Our second multi-decade chart is of the often cited Personal Savings Rate.  In the lower right we see this measure has been in a solid downtrend for a couple of years now.  In addition, we can also see how we are approaching the very weak levels posted prior to the aforementioned 2008/09 recession.

The new high levels of debt as a percent of disposable income coupled with cliff-diving savings rates offers a weakening backdrop for the collective consumer/wage earner in us in my observation.  This is further underlined with a recent CareerBuilder survey reported on here where they discovered 78% of full-time workers live paycheck to paycheck (think limited to no savings) and 56% stated they were in over their heads on their personal debt fronts.

The above charts speak to the results of their survey and speak to the developing vulnerability of the collective consumer/wage earner in us.  For an economy that is 70% consumption driven a weakening structural setup for the consumer offers an obvious concern of its potential impact on near-future economic growth.

Stock markets do very poorly in a recession which is our bottom line skin in the game of watching these developments closely.  These are not predictors of recession but are one of many that give us a sense of the strength of our collective foundations.  The above are trending in concerning directions.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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