As living costs keep rising, it is important to keep track of wages, but more importantly, how fast the consumer is adding back credit. We saw a huge drop in consumer credit over the last two years as people used government transfers to pay down debt and increase consumption of goods. The U.S. is now seeing a HUGE reversal of this trend with a RECORD amount of debt being added over the last two months. Revolving consumer credit is now right back to where it was pre-COVID with a record month-over-month addition in credit.
I am sure you have read the articles and headlines talking about how much consumers have in savings or that wages are rising at a record level. But the truth of the matter is- the average U.S. consumer (aka 80% of Americans) are struggling to manage the rising costs. The savings number you see is grossly skewed by the amount of money the top 10% have squirreled away into their accounts. 54% of additional savings is attributed to the top 1% and if you include the other 9% of the top quartile- you now accounted for 83% of increased savings. Well… what about the other 90% of people that live in America? The massive spike in credit gives you the indications of how they are managing the rise in prices… by putting more of it on their credit cards.
The big spike in credit is also happening when U.S. Average Hourly Earnings MoM are missing estimates and continue to not keep pace with inflation. There was a much slower than expected wage gain, which also leads to another problem… are companies starting to hit a resistance point of raising wages? Are they concerned about additional cost and the ability to recover it?
Companies are getting more concerned about the Chinese lockdowns, which are creating shipping delays that rival 2020. It is worth considering that the Chinese lockdowns in 2020 are STILL being felt today and it has been over two years from the initial zero tolerance COVID policy. This is going to create another supply side inflationary situation that will cause prices to rise again even as demand wanes. As companies face rising logistics costs again, they are looking to limit the amount of wage cost because firms won’t be able to pass through logistic AND wage cost… they will be lucky if they can pass through even one side of that equation.
The two biggest exporting economies in the world are seeing their new export orders in the manufacturing PMIs drop sharply. It highlights the deteriorating global demand as we move closer toward a global recession. We have seen a sharp drop in demand when looking at global shipping as the pace of exports has waned and inventories have recovered a bit in most countries. This is a mixture of slowing retail sales as well as a small catch-up in the supply chain, which has just gotten much worse (again.)
The last concerning piece when we look at China and the “health” of their local consumer is the employment situation. It isn’t surprising to see a big contraction in employment during a broad based lockdown in China, but the problem is the contraction that has been happening since pre-COVID. Employment has been contracting since 2017, which is a broader issue when we consider that retail sales have also been falling in the system time frame. As hiring has contracted, it has created a bigger problem when looking at job availability and a way to generate more local consumption.
It is difficult to generate sustainable spending when companies are not hiring and actual contracting their employment base. This just helps drive home that the issues facing China were there before COVID, and they don’t have the ability to stimulate the way the market expects. China isn’t saving the global market this time around, and that is a tough reality for many to handle.
Regards,
Freedom Financial News
