The One Big Question About the Economy That Doesn't Add Up

Is the economy Trump strong? Of course, if you listen to the administration, the answer is a resounding yes.

The One Big Question About the Economy That Doesn't Add Up

Is the economy Trump strong? Of course, if you listen to the administration, the answer is a resounding yes. As I look at the data, it makes me wonder. Let's take a look at a few data points.

Retail Sales

In order to have a strong economy, you need a strong consumer spending money. This week we got a glimpse of the retail sales number and it was a negative once again. It was the first time since April 2012 that retail sales have declined for three straight months.

What is even more curious is the fact that these numbers include the historically strong holiday shopping numbers and they were still weak.

Consumer Spending, Increased Debt?

Now take a look at the debt numbers. Credit card balances have eclipsed 1 trillion dollars. According to WalletHub, the statistics get even more interesting. WalletHub released the results of its 2018 Credit Card Debt Survey.

  • The average household owes a record $8,600 – $138 more than at the height of the Great Recession.
  • The $67.6 billion in credit card debt that we added in Q4 2017 is the highest quarterly accumulation in 30 years – 68% higher than the post-Great Recession average.

So, here is the million dollar question. If consumers are racking up credit card debt to this extent, then why is that not reflected in the retail sales numbers?

The only other option is that consumers are using credit card debt as a means to survive and pay bills. The answer is probably a combination of the two. However, that doesn't lend to the notion of a strong economy.

Comments
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BobBrooks
BobBrooks

Editor

@jmarkb - Reagan's tax cuts were a little different because he did so in a falling interest rate environment from double digit territory. He started the easy money economy. As far as I know, they are looking at total credit debt carried over. The only reason that consumers (to your point) would be holding back is they are waiting on lower prices which happens when you are in a deflationary environment.

jmarkb
jmarkb

I guess it depends on how credit card debt is being calculated - is it based on every time your card is used in the month or is it based on carrying over the balance to the next month. I use my card for almost all purchases but I pay it off in FULL when the statement comes in. The other consideration is, once someone gets themselves into big debt on a credit card it is hard to get out of it - interest rates increase and a lot of people can only afford to pay the minimum payment which usually means they'll never pay it off. I guess the other thing about retail sales is, perhaps people are just hanging on to their money longer and not buying unless they really need it (which is the prudent thing to do anyway). The economy probably isn't as strong as we are being told it is but give it a little time for the benefits of the tax cuts to kick in and we'll see. After all, Reagan's tax cuts were criticized and they turned out to be a boom for the economy.

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