Is the incorrigible American spendthrift finally exhausted?
I don’t know how many times I’ve posed that question over the past three years. A lot. And every time, the answer ends up being “no.”
Betting against the US consumer is perhaps the quintessential macro fool’s errand. Americans find a way to spend even when there’s no more money.
That said, delinquencies of various sorts are on the rise. And the nation’s collective credit card balance exceeds $1 trillion at a time when card rates are perched at record highs. At some point, that juxtaposition may be untenable.
With that in mind, revolving credit balances rose the least in three years in March, according to Fed data released on Tuesday afternoon in the US.
The increase, a mere $152 million, barely shows up (see the figure above) and perhaps suggests consumers are pulling back. (I assume most readers are aware, but this series isn’t adjusted for inflation.)
You could, I suppose, put a positive spin on the downshift and say it’s good news that Americans aren’t financing senseless discretionary purchases at 22%. But it’ll invariably be contextualized by cautious commentary from a few consumer brands during reporting season.
“With many consumer-facing companies discussing cost-conscious households on earnings calls and with several important bellwethers selling off post-reporting, it’s probably not a surprise that we fielded a number of questions on the state of the consumer last week,” Morgan Stanley’s Mike Wilson remarked, in his latest.
The figure above shows transcript mentions of “value,” a focus for corporate management teams “as the lower income cohort pulls back on spending and trades down,” Wilson went on.
The underwhelming increase in card balances led total credit to undershoot meaningfully in Tuesday’s release.
The $6.3 billion increase was below every estimate but one.
I make a good income and I have cut my spending. Not because I can’t afford things, but because at current prices, nothing has value. I am balding and buzz my head. I went to a barbershop the other day and they wanted $50 to run a pair of clippers over my head for 10 minutes. No thanks. The last time I had Starbucks a medium latte was $6. No thanks. My answer to most decisions regarding money is now “no thanks” and it will continue to be so until the value proposition changes.
On a related note:
https://www.bloomberg.com/news/articles/2024-05-07/-buy-now-pay-later-has-americans-racking-up-phantom-debt?cmpid=BBD050824_OUS&utm_medium=email&utm_source=newsletter&utm_term=240508&utm_campaign=openamericas&sref=FxVxvswS
Thinking alike here 🙂
It would be interesting to have data for BNPL. I think (see below) adding BNPL activity to the CC chart would at least move the needle.
AFRM’s GMV grew +30% to $20BN in 2023. 1Q24 GMV grew +36% to $6.3BN, so usage is accelerating. Average transaction is about $300. Klarna is the largest BNPL with 2023 GMV about $90BN, so guessing 1Q24 around $25BN? SQ (Afterpay)’s 1Q24 GMV was $7.0BN (+25%). AAPL (ApplePayLater) just launched. I don’t have numbers for EBAY’s BNPL or other BNPLs. Might be an annual run rate of $150-200BN of GMV on BNPLs right now, growing say +20% to +25%? Would have to estimate the credit balance from that.
Thanks for the spadework, JL. Funding the American dream.
Then we see mention of the next step being the securitization of residential LOCs.