As Consumer Participation Weakens, Debt Market Risk Rises

Now let’s consider e-commerce growth for a moment from the same census report.


Net sales for e-commerce (versus brick and mortar) have risen, as a percent of overall quarterly sales, since 2009. This phenomenon has often been credited with the failures of retail outlets over the last several years. But the census data, when both artifacts presented above are taken together, really show that the rise in e-commerce has not been enough to offset the overall retail sales rates declines in the US.

Putting debt and spending together, it seems clear that the American consumer is spending less while dealing with higher debts. Debt payments as a percentage of disposable income has not crossed an historic Rubicon yet. But this metric ignores the impact on overall debt growth supported by historically low interest rates and increasingly minimalist credit repayment terms.

Worker Pay Trends

Lurking behind the typical discussion on consumer debt and spending is how much of the productive economy are workers earning. If consumers are expected to support the economy moving forward, their wages need to grow in parallel with expectations on their spending growth.


The chart above shows that the share consumers are making from the gross domestic income has fallen for over 40 years. When it comes to projecting future consumer participation in the economy, it would make sense to reduce the percentage that consumers spend and therefore contribute to economic production.

It would seem an economist would not project increases in consumer spending given the protracted trend we see in the chart from FRED above, unless interest rates were expected to continue to fall further. Or a debt jubilee policy is expected to be enacted the government. While the former could happen, it is somewhat unlikely given the record debt levels across the public and private sectors of the economy.

The latter is highly unlikely to happen in the near future unless some sort of debt-based economic collapse becomes imminent and there are no other choices left on the policy-makers table. In other words, last resort only.

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