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A Second Look at Credit Card Spending, What is It "Really"?

The spotlight last week was on consumer credit. Let's have another look.
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Real (inflation-adjusted credit) vs nominal credit, data from the Fed, chart by Mish

Real (inflation-adjusted credit) vs nominal credit, data from the Fed, chart by Mish

On June 7, I reported Revolving Consumer Credit Jumps Again in April, Up Nearly 20 Percent

Those are the numbers everyone was quoting. But those numbers and percentages are not adjusted for inflation. 

The above chart uses a PCE deflator for "real". That's the Fed's preferred measure of inflation. 

On that basis, revolving credit is nowhere close to the pre-pandemic level. Let's now check out percentage increases.

Nominal Percent Changes 

Nominal credit data from the Fed, chart by Mish

Nominal credit data from the Fed, chart by Mish

Real Percent Changes 

Nominal credit data from the Fed, chart by Mish

Nominal credit data from the Fed, chart by Mish

Credit growth was still large, but nowhere near as large.

US Import Demand is Dropping Off a Cliff

What got me thinking about all of this again was an excellent article by Henry Byers, the head of ocean intelligence at FreightWaves: US Import Demand is Dropping Off a Cliff

The latest ocean container bookings data reveals that despite the strong levels of inbound cargo during the first five months of 2022, import demand is not just softening — it’s dropping off a cliff. Because capacity on the trans-Pacific has remained relatively stable, Freightos’ container spot rates from China to the West Coast have plunged 38% month-over-month to $9,630.

Container imports bound for the U.S. have dropped over 36% since May 24. (This index measures departing container volumes at the port of origin). This is a troubling sign for domestic U.S. freight markets that have been benefiting from an unprecedented surge of containerized import volumes over the last 18 months. 

Credit card spending has been accelerating at a time when personal savings rates have continued to decrease and move toward some of their lowest rates (last reading 4.4) since the Great Financial Crisis (4.5 in August 2009). There are two ways to read very low savings rates: either consumers are exceptionally confident and exuberantly spending their money or consumers are spending every last dollar they have in an attempt to keep their heads above water in a high-inflation environment. Either way, there isn’t any slack left in consumer wallets — it’s hard to imagine consumer spending growing from here.

Unfortunately, inflationary pressures in energy and food don’t know or care that American consumers are out of money — inflation in those sectors was caused by supply shocks, not artificially stimulated demand. 

At first glance, one may look at retail sales and conclude that they are growing, but keep in mind that the report is measured in nominal dollars unadjusted for inflation and represents increases in the prices of goods being sold — not so much the strength or resilience of consumers

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My charts above reflect that excellent comment by Byers. Using the CPI as a deflator would show even less of a surge.

Recession Watch

I think a recession has started or soon will, but we do need to see another month of retail sales, perhaps two.

If the retail sales data is strong enough, I will change my mind. Data is lagging. The most recent data is for April.

And it's real spending, not nominal, that's an input to GDP.

Over Twenty Million Households Struggle to Pay Energy Bills

Meanwhile Over Twenty Million Households Struggle to Pay Energy Bills as we head into a blisteringly hot summer.

It's not looking pretty.

This post originated at MishTalk.Com.

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