Donald Trump can say all he wants about “soft” data (i.e. the sentiment indicators he so loves to cite), but the bottom line is this: the economy just doesn’t seem to have a “hard”-on for this President.
Seriously. Look at the juxtaposition between the “soft” and “hard” data:
Now who knows, Trump may be able to get us all “hard” yet, but it’s pretty clear that we’re going to need some more foreplay.
That said, maybe it’s not all Trump’s fault. As Bloomberg contributor Cameron Crise notes, some of the problem may be a hangover from the crisis as US consumers still have a bit of “performance anxiety” when it comes to “yanking out” their credit cards and “exposing” their FICOs.
While the consensus remains that U.S. bond yields are eventually heading higher, the extent of the rise may be muted if the economy cannot kick out of second gear. In determining how far yields could rise, traders would do well to focus on U.S. households, the largest sector of the economy.
- One of the great conundrums of recent months is why the surge in U.S. consumer optimism hasn’t translated into stronger spending. In fact, this disparity has been a regular feature of the economic landscape since the crisis.
- Based on the steady improvement in consumer sentiment over the past few years, we would normally expect real consumption growth to have averaged closer to 4% than 2%.
- An important feature of consumer behavior has been the unwillingness to increase revolving credit card debt. It’s hard to know exactly which way the causality flows: do consumers spend less because they don’t want to use their credit cards, or is tepid revolving credit growth simply the result of an aversion to spending? Either way, the tepid rise in real revolving credit growth is notable.
- Is this a function of banks tightening the provision of credit? Perhaps, but I find that hard to believe. After all, not only are corporate spreads generally tight, but credit cards are a standing facility: you don’t need to apply to the bank every time you want to put a purchase on your card. Indeed, my anecdotal observation is that the airwaves are still cluttered with annoying credit card ads which clearly indicate a willingness to lend. Moreover, delinquency rates remain near all time lows and almost literally cannot go any lower.
- Perhaps consumers are simply averse to using credit to fund purchases because of the hangover from the crisis. Not a hangover of confidence, but a “credit score” hangover, given the American obsession with the box-ticking FICO score.
- Whatever the reason, it’s probably a good bet that consumer spending will remain underwhelming until Americans feel more comfortable using their credit cards again. And while that will provide a boost to both activity and bond yields it will also, ironically enough, set the stage for the next recession.
Note: the twin trillion dollar bubbles (auto loans and student loans) may well have something to do with this dynamic…