Game of Trades: It’s Much Worse Than You Think
The economy has held up well, at least according to headline data. GDP growth remains strong, and unemployment is still near lows. That’s helped the stock market recover from its autumn slump.
However, some dangers lurk underneath the headlines. Consumers may be close to tapping out excess savings. And that could lead to a drop in consumer spending. If that happens, the economy may tip over into a recession at a stunning pace.
For instance, only 39 percent of Americans have an emergency fund with at least $1,000 in it. Plus, many Americans living paycheck to paycheck. Over a third of those earning over $150,000, a high-earning income level, are doing so.
Credit card debt has doubled in the past decade, and has recently topped $1 trillion. And savings relative to income have dropped to zero percent. That’s in contrast to 10-12 percent in the 1950s and 1960s.
In other words, consumers are now spending more than they earn. Either earnings need to rise, or consumer spending needs to drop.
Other consumer debt has been on the rise. Total consumer debt is $5 trillion higher than before the global financial crisis of 2008.
Adding up the current conditions, and it’s clear that markets may trend higher in the short-term, but could face significant headwinds once consumer spending starts to drop.