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Is This an Emergency Relief Valve or Just a Way of Life Now?

CAMS Weekly View from the Corner - Week ending 4/5/24

April 8, 2024

This past Friday consumer credit usage was updated with the Revolving Credit segment again posting the largest overall increase.  Revolving Credit, i.e. credit cards are on a relentless trend that has rocketed higher in recent years.


This trend has coincided with this price inflation era which has weighed heavy on price inflation adjusted wage growth rates.  Wage growth rates, when adjusted for price inflation, had been underwater for a solid two years.  As a result general household wages were not able to keep up with the growth in prices.


In the previous ten months said wage growth rates have turned marginally positive.  The issue is the now marginally positive inflation adjusted wages are not enough to recoup from the damage that had been done to the general household’s financial situation during the two year run of negative wage rates.


This has left a large amount of U.S. households financially depleted from the past damage while the on-going stubborn price inflation has offered little reprieve.


In this process the lean into credit card usage has seemingly become a societal way of economic life.  Just in the past three years collective credit card debt has increased by $370 billion.

Above is a chart of Revolving Consumer Credit – credit cards – depicting the storyline for this 21st century.  Our three red up arrows note the primary trends in this timeframe.  The trajectory of our current trend is without match in this century.


For perspective, our first arrow notes a nine year period where credit card debt grew by $400 billion.  Our second (middle) arrow notes a nine year period where this same debt category grew by $270 billion.  Our current period notes an increase of $370 billion in three short years.  Importantly, the outsized trend of the previous three years shows no signs of letting up.


Adding to this backdrop the majority of this three year run rate reflected average interest rates on this debt in the low 20% range.  Currently, in 2024 up to current day the median average rate has been 24% according to Investopedia’s average rate calculation.  The Federal Reserve’s number comes in a bit lower at nearly 22% with a little different approach in its calculation. 


These numbers placed together – the level of debt accumulation coupled with the interest rate on this debt accumulation – suggests desperation.


This blows over the old adage in economics that if you want less activity of X economic storyline increase its price.  The price of this borrowed capital – its interest rate – has rocketed higher and the citizenry’s response to this “increase in price” has been to rocket higher their demand for this “product” – that is, credit card debt.


With this we can conclude this is not a citizen’s response to an abnormally low interest rate thereby stimulating demand for it.  In addition, this landscape does not offer a collective scarcity fear that is driving the masses to gobble up as much as possible with a belief that it will soon no longer be available.


To the contrary as this is the highest rate by far in this century and our collective response to this is to take this debt on at the fastest rate in this century.


With the most recent update on this data we see in the previous month this debt category increased by $11.26 billion.  That’s one month.  To be certain this is nowhere near a one month record during this three year run as those types of numbers are double the current one month increase.


These monthly double digit billion dollar growth levels offer concern in how they have become the norm.  By way of contrast, in the previous decade as well as the fullness of this 21st century monthly double digit billion dollar growth levels in this debt category was an outlier far more than any type of customary experience.


You Have Growth and Then You Have the Quality of that Growth


Strewn throughout editions in recent months as well as recent years we have shared X indicator or economic relationship that has offered no recession in near-term sight.  These views have proved accurate to current day.


Importantly, this has not been driven by our opinion but rather has come from relying heavily on historical storyline’s of recessions with a seemingly endless stream of indicators and economic/market based relationships to observe and monitor.  The vast majority of them along the recent historical path offered no recession in sight.  Said differently, they offered continued economic growth straight ahead.


What we have not explicitly shared is the quality of the expected growth.


Simply offered it is an off-the-charts debt fueled binge that is a significant driver of this growth which is not a recipe for vibrant and healthy longer term prospective growth.  The entire system is stuffed with debt here in the U.S. as well as around the globe and its relentless growth and reliance upon it continues.


We are beginning to suspect and to contemplatively ask if this will lead economic growth right into a brick wall.  What is meant by this is will we see, at some point, an abrupt halt to this growth catching many off guard.  These are contemplative questions shared aloud not predictions.  Debt fueled growth can easily find its reckoning in the most unsuspecting ways and at the most unexpected times.


As another case in point the U.S. Treasury debt growth simply cannot be sustained with what are becoming customary growth levels.  This debt category is playing a notable role in the underlying economic growth as well.


It is important to keep in mind that all incurred debt levels across debt categories bring future demand into present demand by bringing dollars into the present from the future via the debts incurred.  Give us the dollars now – we’ll get you back down the road.  It’s the “down the road” aspect that offers the downstream issues when debt fueled binges go full throttle.


From our perch there is little if any serious collective national discussion on this issue which offers this will continue as standard operating procedure until it can’t.  And that is the problem, in a contemplative sense looking downstream on the timeline.


For now there are no signs of imminent recession.  At the same time this is not to say that our current growth model is a poster child of stability and vibrancy.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis


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