Consumers With Revolving Credit - Have To, Or Want To?

It was around May 2018 (May 29) when revolving credit climbed back up and the labor market data peaked that wholesale sales, in particular, registered what is now a more than yearlong pause (which, like durable goods, may amount to something more than a pause and more like contraction, though one that may not be fully revealed until upcoming benchmark revisions in future years).

What stands out is how this break in sales clearly diverges from wholesale inventory, which can only mean one thing – wholesalers as anyone else along the supply chain were expecting robust growth only to find there wasn’t any at all.

That interpretation fits within the paradigm of credit card usage being more “have to” than “want to.” When those at the margins have to use credit cards they are going to be more careful about it. Therefore, a change in direction at the margins which, for now, the data says was at least an inflection in overall spending on goods (confirmed by retail sales).

The broader economic consequences of that are what we have been seeing in places like manufacturing and now service sector PMI’s (acknowledging that a whole lot of service activity is related to the movement, management, and sale of goods).

The unanticipated (businesses and business professionals still listen to, and make their forecasts from, Jay Powell because there is apparently nowhere else to turn) buildup of inventory puts the brakes on production orders. The distance between sales and inventory was created by, as suggested in “have to” credit cards, an abrupt change in consumer spending due to perceptions of and in all likelihood the reality in the labor market.

Not strong.

And that was before getting up to speed with more recent projections nearer to where things might stand right now at this moment.

Altogether, it proposes the balance of risks are entirely on the downside which will mean all those things stated in the outset here: no way the Fed is one and done, not that it really matters in the economy, and, in what would be John Maynard Keynes’ worst nightmare, the perception of these risks increasingly acted upon by consumers as worried workers.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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