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Consumer Spending — If you’re lucky enough to have received one, I think it’s safe to say that you’ve spent your stimmy checks and are returning back to normal.
That narrative is in line with what JPM is saying about bad loans and consumer credit.
Lately, we’ve seen consumer spending go straight to the credit card, as prices on everything from gasoline to groceries to luxury goods have gone to the f*cking moon.
PIMCO’s chief economist called Wednesday’s CPI print a 5-alarm fire equivalent, and I tend to agree with that opinion. Supply-and-demand is the law of the land, but outsized shifts in pricing tend to be sticky, regardless of the type of good or service.
In short, it’s unlikely that you’ll see prices move back down to February of 2020 levels. Ever.
Two things are happening with the American consumer.
As prices go up, real wages are being flushed down the toilet. I’ve seen estimates from anywhere between 6k and 8k of real income wiped away due to inflation since January of 2021.
I’ve already alluded to the second trend. We’re back on our sh*t, swiping those credit cards again.
What some consumers don’t realize is that their credit card APRs are going to shift as the Fed jacks up interest rates to fight inflation. Not only are you paying exorbitant prices, but you’re also about to start paying (even) more in interest when you send off those e-payments to your credit cards.
If you thought paying CC interest was a good deal at 17% APR, you’re going to love it at 30%. That’s the reality that some consumers are about to enter.
So when you grabbed that 0% APR for 12 months to do that kitchen reno during C-19 and didn’t pay off the 75k that it cost you in time, you’re going to be in a world of hurt once reality sets in.
If we enter a recession and things get bad, this trend will likely accelerate, as credit is an easy crutch for those of you unlucky enough to lose your job during the recession.
Not that we are there yet, but this could have a slew of poor outcomes if these debts go bad. Fingers crossed, we never cross that bridge.
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