I have put some charts together to connect consumer behavior, credit expansion and banking conditions (click on the images to enlarge).
- Negative Personal Saving Ratio: Americans are spending more than they are making. I bet the ratio is much worse if we exclude the top 1% of the population that makes 22% of all reported income in the US, the highest ratio since the 1920's (NYT article).
Honey, I've Shrunk Our Money
- Record Debt: For the past fifteen years households had gone on a long, uninterrupted borrowing spree.
Me Lend You Long Time, Honey
Looking at house sales, the correlation between housing activity and household debt growth is very apparent. Housing and mortgage debt went hand in hand on a super-long cycle between 1990-2005, now finally come to an end.
- Retail sales are stalling: Real sales are not growing at all. It is supposedly smart to perpetually bet on the voracious appetite of Consumer Americanus, but this view was formed during the quarter century of constantly dropping saving rate (see above). Now that the rate is negative, such a bet would be imprudent. Keep in mind that consumer spending makes up 70% of GDP.
No Money, No Honey
- Banks are not prepared: Although household financial conditions are stretched, US banks are not prepared for a deterioration in loan performance. Their loan loss reserves are at the lowest levels since 1985.
Yes, seriously past due loans (90+ days) are at very low levels. But if anyone wants to bet the credit cycle is dead and buried, this is definitely not a good time.