Early Warning on the Economy?

[Walt34]

I still recall the promotion "Change Back From Your Dollar." Don't know if that was McD or BK. One of those two.

Heck, I'll go back further than that, McD's advertisement was: "47 cents for a three-course meal". (Burger, fries, shake.)

 

[GrayHare]

There's a web site tracker I follow that saw record visitors as COVID peaked. IIRC that peak came during spring 2021. Every month since then had seen a year over year drop in visitors until October 2023. FWIW, I conclude the COVID induced cycle has ended

 

[MichaelB]

I hope you're right. I tend to be more cynical and view the typical consumer having a " worry about tomorrow, tomorrow and live for today" mindset.

That interpretation is understandable, we’re conditioned to assess risk and fear. Humans do act in a mostly rational way, though, and we make commitments affecting future obligations, such as taking on debt, when we’re confident we will be able to meet them.

Here’s a chart by the St. Louis Fed showing the savings rate over the past 60 years. (here) Between recessions the savings rate declines, then jumps up once a recession starts.

One might observe the total savings rate is too low, and it would be hard to disagree.

 

[GrayHare]

The sub-10% savings rate began common in 1985. From that site: "Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences." I gather that means money put into retirement accounts and housing counts as savings. The accompanying table shows something near a 5% savings rate has been common since 1999. Wait, 5% is the average spending on retirement contributions plus mortgage payments? That sounds way too low.

 

[Koolau]

Trip down memory lane.

When I first started going to McD's back in the early 60's (when I learned to drive) it was $0.50 for all that! HBs were $0.15, fries were $0.10 and a coke was $0.10 - for a large! Heh, heh, change back from your half-dollar if you bought the small coke! That was also back when my state had no sales tax. I think sales tax is now 8% with income taxes also increased. (One of the few advantages of moving to Paradise. McD's is way more expensive, but taxes are much lower - especially for retirees.)

DW (then DGF) and I used to jump in the car at lunch in high school and race over to the McD's. A dollar bought us all the food we could eat on the way back to school. Only problem was railroad tracks. If a train came along, we had to race out to the by-pass and come back into town. We never were late, but it was close a couple of times as the trains love to pass each other right through town (as they had to slow down anyway.)

But I digress. Returning you now...

 

[JoeWras]

I love that report, it has so much data. The 3Q ‘23 report can be found here

It’s counterintuitive, but increased debt is a positive sign. People take on more auto and credit card debt when they have a positive view of the future and save more when they fear bad times ahead.

Delinquencies have ticked up a bit but are still below pre-pandemic levels, and credit scores are holding, which means low credit borrowers are not increasing their share of new credit.

It is a very cool report. Never seen it before.

I get your counterintuitive point. But I also want to focus on late '06 and '07 on that graph. Was the turn in the slope the canary in the coal mine that looked toward the upcoming crisis that was fully evident in late '08?

So similarly, is the change in slope this year predictive of something coming down the road?

Maybe, maybe not. I don't know.

 

[Badger]

When I first started going to McD's back in the early 60's (when I learned to drive) it was $0.50 for all that! HBs were $0.15, fries were $0.10 and a coke was $0.10 - for a large! Heh, heh, change back from your half-dollar if you bought the small coke!
I clearly remember those days during the early 60s

DW (then DGF) and I used to jump in the car at lunch in high school and race over to the McD's. A dollar bought us all the food we could eat on the way back to school. We did the same but not MDs. There was an old "food truck" that had hamburgers, hot dogs, and fries. I think the old cook changed the grease out once a year whether it needed it or not.

Cheers!

 

[Andre1969]

It’s counterintuitive, but increased debt is a positive sign. People take on more auto and credit card debt when they have a positive view of the future and save more when they fear bad times ahead.

That could be true for credit card debt, but I'm wondering if auto loan debt is higher, simply because of expensive vehicles and high interest rates? I know I helped out some, with inflating those numbers when I bought my Charger. Even with $10K down, that sucker's $777.17/mo for 72 months! My credit is about as good as it gets, yet my interest rate was still something like 8.04%.

The last time I financed a vehicle, in 2012, the interest rate was only something like 3.49%. And back in late 1999, I got 0.9%. This ain't Kansas anymore, Toto!

 

[JoeWras]

That could be true for credit card debt, but I'm wondering if auto loan debt is higher, simply because of expensive vehicles and high interest rates? I know I helped out some, with inflating those numbers when I bought my Charger. Even with $10K down, that sucker's $777.17/mo for 72 months! My credit is about as good as it gets, yet my interest rate was still something like 8.04%.

The last time I financed a vehicle, in 2012, the interest rate was only something like 3.49%. And back in late 1999, I got 0.9%. This ain't Kansas anymore, Toto!

Yes, inflation is a factor in any of these graphs that use actual numbers.

That's why I think the "delinquency ratio" graph that MichaelB pulled out is so good. It is pure percentages that don't rely on overall money and debt in the system.

 

[pjigar]

Wait, 5% is the average spending on retirement contributions plus mortgage payments? That sounds way too low.

I would think this would include only the principle payment on mortgage; interest and taxes are expenses. A lot of mortgages were (re)refinanced during the low interest rate years so the principle payments would be very low for those mortgages. We also know that a lot people (over 50%?) don't even participate in retirement plans. Average balance for retirement plans in 2020 was 30K in 2020 so you can imagine how much people actually contribute annually. I think 5% number makes a perfect sense.

 

[MichaelB]

That could be true for credit card debt, but I'm wondering if auto loan debt is higher, simply because of expensive vehicles and high interest rates?

Probably. The chart on page 4 shows the number of loans or accounts, not the amount. Auto loans declined a bit in ‘20 through ‘22 and look flat for ‘23.

It is a very cool report. Never seen it before.

I get your counterintuitive point. But I also want to focus on late '06 and '07 on that graph. Was the turn in the slope the canary in the coal mine that looked toward the upcoming crisis that was fully evident in late '08?

So similarly, is the change in slope this year predictive of something coming down the road?

Maybe, maybe not. I don't know.

Not sure which chart you are referring to. Looking at mortgages, the share of lower credit rate mortgages is much higher than now, and the credit scores at mortgage originations is higher now across the board. Credit scores for auto loans are also higher now than in ‘06-‘08.

Delinquencies are starting to move up in auto loans and credit cards. They are still below ‘06-‘08 levels. I think it’s not reason to worry, but it is something to keep an eye on.

 

[JoeWras]

Not sure which chart you are referring to.

This part. Very early change in slope. Could just be a bump.