In late September, I posted a blog (Is the Consumer About to Be Tapped Out?) that focused on the fact that the extra savings that had been accumulated by households during the pandemic are largely depleted. Given that the consumer represents 68% of the overall economy, this raises concern that spending might tail off thereby removing the main source of growth in GDP.
Well, there are a couple of more data points that suggest increasing stress on the part of the consumer. Bank of America reports a 27% increase year-to-date in the number of their corporate clients’ 401(k) participants taking hardship distributions. IRS rules for hardship distributions require an “immediate and heavy financial need” and these withdrawals are subject to income tax. Second, credit card balances in the third quarter increased by $154 billion versus the prior year, the largest increase since the FED began tracking the data in 1999. Finally, the number of households delinquent on credit card balances is at the highest level since 2011.
Balancing these ominous statistics are the fact that the labor market is very healthy with an unemployment rate of 3.9%, and household debt service payments as a percent of disposable personal income are currently at 9.8% as compared to the long run average of 11%.
All of this confirms my strong-held belief that the outlook for the economy is never clear and those that are confident in their predictions are foolhardy!