Harry Truman once asked for a one-armed economist having tired of his economic advisors saying “On the one hand, this. On the other hand, that.” Well, I’m going to be a two-handed economist in this blog.
Despite concerns that we might experience a recession due to high interest rates, we sailed through 2024 with healthy Real GDP growth of 2.8%. Our good fortune was largely attributable to consumer spending which represents about 70% of the economy. Several of my recent blogs have pointed out a few areas of concern regarding the health of the consumer. Here are a couple more. The personal savings rate has fallen from a 6.9% average over the past ten years to 3.5% in December, a sign that the consumer may be stretched thin. While still manageable, credit card delinquencies have risen from 1.5% in 2021 to 3.08% currently. Third, it was just reported that car owners are missing their monthly payments at the highest rate in thirty years.
Finally, the ADP monthly employment report indicated a slowdown in hiring and the ongoing turmoil impacting Federal Employees may lead to higher unemployment. While none of these are severe just yet, they certainly bear watching.
On the other hand, Moody’s recently published an analysis indicating that the wealthiest 10% of Americans are responsible for one-half of all consumer spending. Their spending has been driven by the strong stock market and rising home equity. So, as long as these markets hang together, those at the top are likely to keep spending and we should be fine. On the other hand, …………