Consumer Credit on the Rise Again, Deferred Debt Mounting as Moratoriums Set to End, and Employment Still Down

As many Americans used the stimulus stipends to pay down credit cards and other revolving debt throughout most of 2020, it has subsequently began rising again in 2021. On the other hand, nonrevolving credit has continued to soar far past pre-pandemic levels mostly due to a surge in mortgages. While low interest rates and lockdowns spurred this flurry of homebuying, an alarming percentage of existing homeowners are delinquent on their mortgages. They’ve had the protection of moratoriums on foreclosures since the beginning of the Pandemic but what will happen to vulnerable communities when the support ends and deferred debt comes crashing down? Meanwhile, Congress passed a bipartisan infrastructure bill this week, giving the green light to trillions of new spending but there is fear the treasury’s cash balance will fall into the negative in just a few short months. U.S. productivity gains were lower than expected for Q2, and due to wage issues and Covid concerns, those already working have had to pick up the slack. But manufacturing saw improvement, keeping the overall productivity above pre-pandemic levels. Turning to U.S. equities, the S&P 500® Index has continued its ascent and a record number of S&P 500 companies beat earnings. However, the implied risk premium on the index is at its lowest in over a decade and many earnings calls did not tout as much “optimism” as the previous four quarters’ calls. Is it time for equities to “take a break”?

1. Americans are beginning to expand their spending again, although early reports are that balances continue to be paid off:

Source: The Daily Shot, form 8/10/21

2. Refinancing (with cash-outs) and new home purchases significantly increased the average household’s debt:

Source: The Daily Shot, form 8/11/21

3. Yet as strong as the average balance sheet of Americans is, there are still pockets of vulnerability that could threaten the system:

Source: The Washington Post, from 8/10/21

4. We have mentioned this before, but this is a great historical view. ~40% of CPI is the housing component, which is based on equivalent rents, not house prices. The delta is massive:

Source: The Daily Shot, form 8/11/21

5. Here we go again. Passing trillions of new spending will be moot until Congress addresses the debt limit:

Source: Oxford Economics, from 8/11/21

6. Covid uncertainty along with wage issues has kept employment lower than employers desire. This means those working have had to make up some of the difference:

Source: The Daily Shot, form 8/11/21

7. There has been a disconnect between LatAm EM GDPs and commodity prices. Which way will the gap close?

Source: The Daily Shot, form 8/10/21

8. Is it time for the markets to take a break? ‘Tis the season…

Source: The Daily Shot, form 8/11/21

9. While a record number of the S&P 500 beat their earnings estimates (albeit with low comps), the earnings calls have turned much more pessimistic due to Covid and related issues:

Source: BofA US Equity, from 8/10/21

10. Some more data on Covid and the vaccines:

Source: Statista, from 8/11/21

11. Perhaps a silver lining to Covid? Masks, hand washing, etc. has virtually eliminated the flu… for now.

Source: The New York Times, from 8/11/21

12. Remember the Pet Rock craze?  Well, now you can buy the image of a rock (or pretty much anything)…one pixel at a time or the whole thing. In an “OK, Boomer” moment, I’ll predict the outcome will be the same…

Source: The Daily Shot, form 8/11/21