HORAN Capital Advisors

Consumer In Decent Shape, A Positive For Continued Economic Growth

 April 25 2018     David Templeton
In spite of the market's negative reaction to some of the recent earnings reports issued by credit card companies, one might think the individual consumer is in pretty bad shape. To the contrary though. About a year ago I evaluated the consumer as a result of issues surrounding some of the credit card firms. As was the case in the earlier blog post, the consumer data today is indicative of a consumer that is not overly burdened with debt repayment.

The following three charts provide a visual picture of the debt service burden on consumers along with various charge-off and loan delinquency rates. The first chart represents the Household Debt Service Ratio which is debt payments as a percentage of disposable income. The current ratio of 10.3% is just slightly above the year ago level of 10% and remains below levels seen at the beginning of prior recessions.



The next chart displays the delinquency and charge-off rates for consumer credit cards. These rates are nearly unchanged from a year ago as well.


The delinquency rate for consumer loans at financial institutions also remains far below pre-recession levels.


Lastly, Tuesday's consumer confidence report issued by the Conference Board showed a high level of consumer confidence. This report does bodes well for the economy. The Conference Board's report noted,
“Consumer confidence increased moderately in April after a decline in March,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved somewhat, with consumers rating both business and labor market conditions quite favorably. Consumers’ short-term expectations also improved, with the percent of consumers expecting their incomes to decline over the coming months reaching its lowest level since December 2000 (6.0 percent). Overall, confidence levels remain strong and suggest that the economy will continue expanding at a solid pace in the months ahead [emphasis added].”



Overall the consumer appears to be on sound financial footing. Friday will be the first reading on Q1 GDP. It should be noted recent first quarter GDP reports have been weaker than expected due to seasonal adjustment issues. We believe this could be the case again this year as well. Also noted in the above quote from the Conference Board report is the fact consumers feel their income will remain stable in the months ahead. The consumer represents 70% of GDP so a sound consumer is important to sustain economic growth. At this point in time the consumer seems to be in good shape.