US consumer debt and income dynamics are quite constrained!

Low savings rates, high levels of consumption relative to income and a heightened dependence on current transfers for income growth looks to be a poor frame for consumption growth.  Too much reliance is being placed on “auto loans” and a steady if unspectacular growth in employment.

US consumer debt has been growing at a reasonable pace, and non revolving debt particularly so.  In fact if we relate annual average growth in non revolving debt to growth in personal disposable income (using 3 year rolling averages) we find that non revolving credit growth is at historically high levels relative to income growth.

image

Revolving credit growth (credit card debt) has also blipped higher recently (albeit from much lower levels):image

Motor vehicle loans, a significant non revolving debt component, continue rising to yet higher levels:

image

Real per capita Income growth is also running at weak historical growth rates, and post recovery instead of moving to higher levels (as per previous growth periods) has settled at a pedestrian pace:

image

I also express concern over the level of personal consumption expenditure as a proportion of personal disposable income.  It is bouncing along at what appears to be an upper bound set towards the end of the 1990s.

image

I also noted that the recovery in incomes excluding current transfers has been particularly weak since the end of the 1990s and the following chart shows this.   The growth differential between income with transfers and income without is on an increasing  and unsustainable trend.  image

Likewise there is little buffer available from savings to add to growth in consumption: the lows reached during the 2000s was to a certain extent influenced by one off debt financed consumption expenditure (i.e HELOCs).

image

And a mildly interesting chart showing the differential between nominal and real personal disposable income:

image

And some light shed on the individual income components:

image

Leave a Reply