Published May 17th 2023

Daily Brief - 🌩️ The first (consumer) crack?

TLDR: It’s really tough to make economic publications interesting to … well, almost anyone. But in the Daily Brief we try anyway because occasionally you do find an investment gem. And so we wanted to highlight a notable change in an otherwise dull report released yesterday. In a nutshell, US households appear to be under increased financial strain. Let’s dig in. (Kidding, kidding - we’ll keep it short.)

recession meme

In the age of click-baiting, the “Quarterly Report on Household Debt and Credit” is almost comically non-catchy. But the hot-off-the-press edition does serve up a really interesting data point that matters to anyone trying to speculate about whether or not the Fed is finally done hiking rates.

US consumer delinquencies are starting to rise quite rapidly. Across the board.

delinquency by loans

This is an important point because a) the economy is still in decent shape and b) the job market is by many measures the strongest since the 1960s … so the fact that consumers are already starting to struggle with debt service shows how pernicious rising rates can be. The regional banks’ spectacle played out in 4k Ultra HD resolution but this trend is a lot more consequential if you’re the Fed. Consumer spending represents two thirds of the economic growth in the US.

The overall delinquency rate remained low by historical levels, at 2.6%. But the share of debt that became delinquent — meaning it was at least 30 days late — is rising for most loan types, including credit cards and auto debt.

By itself, this isn’t enough to make the Fed stop but - along with tightening lending conditions and faster drop in inflation - it provides a solid excuse to pause.

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We live in an age of wonders.

A few months back we realized that for the first time we had some real AI on our hands. Then Google emulated 2D quantum particles, which could be used to stabilize quantum computers. And now, fusion.

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Daily Brief - 🌩️ The first (consumer) crack?

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