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About two weeks ago, we were all hit with the clickbait headline, "credit card balances hit $1 trillion". Immediately, people used this as justification for why the US economy is doomed. What if when we hit half a trillion dollars, which is equally a large enough number, it's hard for us to comprehend we had the same reaction? That was back in September of 1999, and since then, the S&P 500 has delivered 440% of total return, which would have meant $10,000 is now worth $54,000. Imagine making the foolish decision to use a headline or a single data point as a rationale for why you shouldn't invest.



Buy and hold and forget the noise. Have an Advisor who will teach you why the US economy (and frankly, the global economy) is the best place to invest long-term money. Throughout this article, I'll try to do just that: educate you on why this single data point is not anything to make decisions around.

Despite the economic uncertainty of the past year, everyday individuals and households have been resilient. Consumer spending has remained steady in the face of high inflation, rising interest rates, housing market challenges, and layoffs in sectors such as tech. While it has helped that the recession anticipated by many investors and economists has not materialized, this fact is partially due to the strength of consumer finances. How do consumer balance sheets look today, and how might this impact the economy and markets in the coming year?


Personal savings have helped to cushion consumer finances

From a financial planning perspective, there is possibly nothing more important than saving and investing enough to meet future goals. After all, how much you save is completely within your control, unlike the short-term direction of the market. Personal savings and spending are equally important for the broader economy. When times are good and consumers are optimistic about their jobs and financial situations, they tend to spend more. This boosts sales for small businesses and large corporations alike, which then hire workers, make investments, develop new products, and more. This in turn, creates new jobs and boosts wages, which increase consumer activity further. Thus, how consumers feel is an important economic indicator for investors to consider across business cycles.

During the pandemic, consumer spending plummeted which led to record savings rates from early 2020 through much of 2021. At its peak, consumers in aggregate saved over one-third of their paychecks, an unprecedented rate that is seven times the historical average. Although this occurred under difficult personal and financial circumstances, these savings shored up consumer balance sheets and created a cushion for the inflation that came later. Government stimulus checks through measures such as the CARES Act also helped consumers make important purchases and pay off debts.

Since then, savings rates have fallen as consumers have spent more dining out, attending events, and on other services. Still, as shown in the accompanying chart, the trend over the past three years is well above average with individuals saving 8.3% of their disposable income. This is often viewed in terms of "cumulative excess savings" - i.e., the total dollar amount that individuals have saved beyond what they typically might - a figure that rose to $2.1 trillion at its peak.

Since mid-2021, these excess savings have fallen as spending has picked back up, declining by $1.9 trillion. Automobile sales have recovered from a low of around 12 million cars per year to 15.7 million recently, dining activity is 23% above pre-pandemic levels, and travel activity has jumped this summer with almost 2.6 million travelers per day. While this spending shrinks financial cushions, it also supports economic growth.

Some investors fear that this trend could result in economic problems in the coming quarters. While there could be a slowdown in consumer spending, this isn't guaranteed. History shows that there have been long periods during which consumers saved very little, including throughout the mid-2000s. While it's prudent for consumers to save more from a financial planning perspective, the reality is that savings rates have fluctuated significantly over time - in both good and bad economic environments.


Household debt service has risen but is still historically low

Additionally, trends such as wage growth due to the strong job market could support both spending and savings. The latest report from the Bureau of Labor Statistics shows that wages rose 4.8% year-over-year. While this has generally been slower than inflation, hourly earnings are still rising at their fastest pace in 40 years. This is happening at a time when the national unemployment rate, at 3.8%, as reported yesterday in the government jobs data, is near historic lows. Job openings have fallen to 9.6 million, but this still represents 1.6 openings per unemployed person across the country.

Other trends have helped to support consumer finances, including the steadily growing economy and this year's market rally. While household net worth has not yet recovered to its pre-pandemic peak, it reached $150 trillion at the start of the year according to the latest report by the Federal Reserve on the Financial Accounts of the United States.

This is partly because while the aggregate levels of household debt are high across student loans, auto loans, credit cards, etc., what households pay every month is still at reasonable levels. As the chart above shows, debt service levels, with and without mortgage payments, are still below average at 5.7% and 9.6% of incomes, respectively. This is even more true when compared to highly levered periods such as during the housing bubble when debt service ratios were above 13%. Rising interest rates will likely worsen this picture, but this might happen steadily as homeowners benefit from mortgages that were locked in at much lower rates.


Consumer sentiment is only slowly improving

Of course, how consumers feel can differ from their financial picture, especially as they look to the future. Consumer confidence, as measured by the University of Michigan Survey of Consumers, which is a report we look at each month on our weekly video series, "What We Learned in the Markets This Week, has suffered over the past year due to inflation and economic uncertainty. Fortunately, this is slowly improving as the economy stabilizes. According to the same survey, consumers expect inflation of 3.4% in the next year, which could then decline to 3% over the next five years. While these represent high inflation rates, they are far better than what many had feared even just six months ago.


The bottom line? Consumers have been an engine of economic growth over the past three years. Although savings rates have fallen, the strong labor market and manageable debt service levels have supported consumer spending and the broader economy. From a financial planning perspective, investors should continue to save appropriately using the Baby Step Principles, ideally with the guidance of a trusted advisor, who, as Vanguard and Morningstar have pointed out, has helped clients to achieve their long-term goals, with a higher percentage of success than those without an advisor.


Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.


Personal Savings, Record Credit Card Debt & Their Effect on the Economy

September 2, 2023

John-Mark Young

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner. 

Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. 

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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