The Implications of Rising Credit Card Debt on Future Economic Conditions | Episode 091 | 01-17-2024

Despite today's equity market dip, December 2023's retail sales report exceeded expectations, showcasing significant consumer spending across furniture, electronics, and clothing—the best year-over-year increase since January 2023. Leading the charge were clothing, merchandise department stores, and online shopping, contributing to a solid overall performance.  However, market dynamics shifted as investors recalibrated expectations on Federal Reserve actions, anticipating no interest rate cuts in March due to a strong economy.  Something to watch out for, November saw a significant uptick in credit card debt—the highest monthly increase since March 2022.  As we wait to see the December consumer credit report, the question is, how much holiday spending was put on plastic? 

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Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of markets with Megan, and we got a bunch of economic data today. The biggest report, though, was retail sales. So this was consumer spending for the final month of 2023, for December, and the numbers came in much, much better than anticipated. No matter which way that you look at these reports, on the headline level, if you take out autos and gas, if you take out food, if you take out building materials, all these came in much better than expected. So let's dig into a little bit of the details what we consider discretionary spending. So think of things in this report like furniture, electronics, clothing, merchandise department stores. This had its best year-over-year increase since January of 2023. And remember, the first month of January last year was a big surprise from a retail spending perspective. When you look at these reports, what actually rose the most for the month in December? It was clothing, merchandise department stores and also internet shopping, so a solid report all around.

I don't want to put cold water on this report, but the equity market is lower today, and I'm going to explain why. Part of this is the fact that the Federal Reserve is probably not going to come in and cut interest rates in March. The economy, especially the consumer, is still strong, so the Fed doesn't really need to come in and do anything. So you're seeing the equity markets down, bond yields are higher as investors are getting more realistic on what the Federal Reserve is going to do this year.

Here's where our concern lies. Our concern lies in the fact that November so we don't have consumer credit for December yet. But if you look at November so this is the first month where you're getting into the holiday shopping season we saw the biggest increase on a monthly basis in credit card debt since March of 2022. So when we get the consumer credit report, it will be interesting to compare these two. See what's the majority of the spending put on credit card. We've often mentioned that this is a concern in 2024 because this will catch up to consumers and we think that these types of spending numbers probably aren't sustainable. That's all we have today. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.