Is The Average Consumer Really Struggling?
While the past couple months, equity markets having been beaming green.
To reference some data here are some indexes/stocks year to date performance:
- S&P +6.53%
- Nasdaq +13.27%
- Russell 2000 (small cap) +10.28%
- XLK (technology) +13.78%
- Tesla +64.02%
- XLY (consumer discretionary) +16.55%
- Wayfair +55.21%
- Pandora +35.92%
- Bitcoin +47.35%
These are just to name a few. Markets are off to a booming start. But what does it all mean? Are markets a good indicator of true economic sentiment?
Let’s look at 3 key data points that tell a differing story.
Here is a chart I borrowed from Hedgeye Risk Management showing the Credit Card balance of consumers over the past 20 years, as well as the credit card interest rates rising to all time highs (as of Q4 2022). The combination of high CC balances + high interest rates= consumer feeling squeezed.
The ISM manufacturing data is a crucial economic indicator that assesses the condition of the U.S. manufacturing sector. It is determined by a monthly survey of purchasing managers in the manufacturing industry, and it reflects their perspectives on different aspects of business conditions, such as production, new orders, employment, and supplier deliveries. As demonstrated, the numbers have shown a significant decline over the past year, indicating a slowing growth in the sector.
Here is some more data from Hedgeye showing 30+ day delinquency rates from Capital One and Synchrony Financial. The credit quality is worsening and deviating from the low levels of delinquencies observed during the pandemic. This could pose a threat to retailers who have exposure to credit cards, as it will negatively impact their credit revenue and increase their bad debt expenses.
As we can observe, there are three negative indicators that suggest a worsening economy. Consumers are in the worst shape they have been in for a long time, and there are indications that the economy is slowing down overall. It is important to be cautious when investing, as large market upswings do not necessarily reflect the overall state of the economy. Don’t assume that we are in a new bull market just because of a few green days in the market.
Thank you for reading,
Wassim
