Is the Consumer Beginning to Crack?
The title of this week’s Weekly Wire might seem a bit off considering that the US economy added 517,000 jobs in January, the US unemployment rate sits at 3.4%, retail sales were up 3% in January and last week’s Weekly Wire made the case that one BIG reason not to bank on a recession was the resiliency of the US consumer, noting that with consumer spending accounting for about 70% of US GDP, if the consumer was okay, the economy should be okay. So, have we had a change of heart about the outlook for the US consumer and in turn the US economy, at least in the near term?
The answer is no, the US consumer, supported by a still robust labor market (last week, initial and continuing jobless claims both came in lower than expected) continues to spend liberally (last week we learned personal spending in January increased a greater than expected 1.8%). That said, in trying to understand the outlook for the economy and, in turn, capital markets, it is always best to keep an open mind and consider data points that both align with one’s thinking and run contrary to one’s thinking. As it concerns the latter, the data point that we are calling out this week, that we have built this week’s note
around comes courtesy of the Federal Reserve Bank of New York, or more specifically its very well- regarded Liberty Street Economics blog, which noted in a recent posting that Q4 2022 credit card delinquency rates had surpassed pre-pandemic levels for nearly all demographic cohorts (see chart).
If—and it is a big if—the consumer is beginning to crack just a bit under the weight of higher borrowing costs and higher inflation, that dynamic would likely present itself early in credit card data. As we noted last week, the US consumer and the US economy have largely exceeded Wall Street’s expectations year to date. We wonder if that will prove to be the case through the back half of 2023.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 631-BCI-2/27/2023