The relationship of consumer credit to the economy is not well understood. This confusion has many thinking that there is a consumer debt crisis underway.

According to Investopedia:

Consumer credit use from month to month is closely measured by economists because it is considered an indicator of economic growth or contraction. If consumers overall are willing to borrow and confident they can repay their debts on time, the economy gets a boost.

This Investopedia statement should be considered theoretical, and not factual, as there is little correlation between consumer credit growth and GDP/Personal Consumption Expenditure growth. Currently:

  • The rate of growth of consumer credit outstanding currently is growing at nearly the same rate as consumer spending. It is NOT elevated. However, it was not elevated or depressed leading into the Great Recession. Likely consumer credit growth is not a recession flag in the New Normal.

  • Household Debt Payments As A Percent of Disposable Income is near all-time lows. Because of the low interest, consumers can borrow more and pay less. Still, this is not causing consumers to line up at the credit trough.

Household Debt Payments As A Percent of Disposable Income

There are defects &/or questions raised in this analysis:

  • This is averaged data and not median. I believe the lower half of the population is tapped out credit-wise [either cannot obtain credit or are carrying too much debt and cannot get more credit]. This lower half group can do little to accelerate their spending. And the lower half of the population is underweighted in the average.
  • What effect does inflation have on consumer credit growth? Historically, higher inflation has correlated with higher consumer credit growth [the bottom line is that you can borrow and pay back with money worth less than when the item was purchased].
  • When one borrows money, it must be paid back. So borrowing money today likely means that something in the future will not be bought. My point here is that there is an optimum level of consumer credit growth - and it is my position that the U.S. consumer is likely near the optimum level.

Economic Forecast

[Note: The year-over-year real GDP was revised in the 2Q2019 advance estimate GDP trend lines are now more in align with our forecasts]

The Econintersect Economic Index has a long term decline which began in July 2018 - and continued this month (August 2019). Our forecast is approaching closer to the zero growth line.

The fundamentals which lead jobs growth are now showing a slowing growth trend in the employment growth dynamics. However, we expect jobs growth over the next six months to exceed the growth needed to maintain participation rates and the employment-population ratios at the current levels.

Economic Releases This Past Week

The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.

Overall this week, there was no significant data releases. The minor releases this week did little to signal a change to the general trend of weak economic growth.

Economic Release Summary For This Week

ReleasePotential Economic ImpactComment

Conference Board Employment Index

rate of income growth strong

The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months declined with the author's saying "In the coming months, we expect job growth to remain solid".

Econintersect evaluates the year-over-year change of this index (which is different than the headline view) - as we do with our own employment index. The year-over-year index growth rate accelerated by 0.8 % month-over-month and grew 1.3 % year-over-year. The Econintersect employment index declined. Remember, both of these indices are predicting growth 6 months from now.

June JOLTSn/a

The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings is in contraction.

The unadjusted data this month remained well below average for the rate of growth seen in the last year. With this low average rate of growth, JOLTS is predicting lower employment growth than we have seen over the past year. Jolts predicted the slowing of employment growth.

June CoreLogic Home Price Indexn/a

CoreLogic's Home Price Index (HPI) shows that home prices in the USA are up 3.4 % year-over-year (reported up 0.4 % month-over-month). CoreLogic HPI is used in the Federal Reserves' Flow of Funds to calculate the values of residential real estate. The quote of the day was in this data release:

.... Tepid home sales have caused home prices to rise at the slowest pace for the first half of a year since 2011 .

Last month the stated year-over-year increase was published 3.6 % - which is a deceleration of 0.2 % year-over-.year. Note that CoreLogic forecasts:

Single-family home prices stand at an all-time high and continue to increase on an annual basis, with the CoreLogic HPI Forecast indicating annual price growth will increase by 5.2% from June 2019 to June 2020. On a month-over-month basis, the forecast calls for home prices to increase by 0.5% from June 2019 to July 2019. The CoreLogic HPI Forecast is a projection of home prices calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

June Consumer Creditn/a

The headlines say consumer credit rate of annual growth slowed relative to last month. Our analysis shows annual growth accelerated. Student loan year-over-year growth continues to marginally slow whilst non-student loan debt continues to marginally grow year-over-year.

  • that the amount of consumer credit outstanding relative to consumer expenditures is near 21st-century highs.
  • Household Debt Payments As A Percent of Disposable Income is near all-time lows.
Month- over- Month GrowthYear- over- Year GrowthMonth- over- Month Growth without Student LoansYear- over- Year Growth without Student Loans
Total+0.1 %+5.4 %+0.2 %+4.5 %
Revolving+0.1 %+4.8 %n/an/a
Non- Revolving+0.2 %+5.6 %+0.3 %+4.4 %
June Wholesale Tradewholesale is not counted economically

The headlines say wholesale sales declined month-over-month with inventory levels very elevated. Our analysis shows a deceleration of the rate of growth for the rolling averages.

Overall, the rolling averages tell the real story - and they declined this month. This sector's growth continues to trend down. The rolling averages are in contraction.

Inventory levels this month remain at recessionary levels.

Please note that I believe there is something very wrong with the data gathering as this series is significantly worse than any other data set I review.

July Producer Price Indexn/a

The Producer Price Index (PPI) year-over-year inflation was unchanged at 1.7 %. Inflation pressures seem little changed.

Here is what the BLS said in part:

In July, the rise in final demand prices was led by a 0.4-percent increase in the index for final demand goods. Prices for final demand construction rose 0.6 percent. In contrast, the index for final demand services declined 0.1 percent. The index for final demand less foods, energy, and trade services fell 0.1 percent in July, the first decrease since declining 0.1 percent in October 2015. For the 12 months ended in July, prices for final demand less foods, energy, and trade services moved up 1.7 percent.

Surveysservices weak but little changed

Markit and ISM Services Indices - The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but one index marginally increased whilst the other marginally declined. Both are showing soft growth.

ISM Services Index

CountsDefinitely not positive news

Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.