Consumers Have Some Nice Assets

The national debt here and around the world continues to grow inexorably toward the stratosphere, yet households have steadily improved their balance sheets.  Household debt to GDP has fallen from almost 100% to just 80% since 2008. Individual assets have risen at a rapid 10% rate that far outpaces consumer debt accumulation. In fact, household debt is essentially where it was in 2008 and household wealth has risen an additional 27 Trillion. 

While a roaring 8 year Bull market in stocks have helped, it’s the soaring home prices that have been the primary impetus for improved individual financial health. From 2005 to 2009 the glut of homes for sale toppled the global debt markets. Since then, home building has yet to keep pace with millennial demand sending apartment rents and home prices soaring to new records on the continued supply shortage. Household net worth  jumped a prodigious 2.3 Trillion in the 1st qtr 2017 to almost 95 Trillion, Home values appreciated by a half a Trillion and savings rose 100 Billion while debts grew by 46 Billion. 

The subdued home building and sales rates combined with extremely low interest rates in a disinflationary era have kept the consumer in the early innings of an economic recovery like the early 1980’s and early 1990’s. The modest growth rate in household debt with low borrowing rates has kept the debt service burden painless. 

Clearly Banks see the record high FICO credit scores and low interest rates as a safe risk in providing capital to their clients.

Inflation adjusted Household Incomes have now surpassed their major economic cycle peaks in the year 2000 and 2008 with monthly income growing an impressive 4%+ for the past 2 months.  Unemployment claims per capita are at record lows while job openings are at unprecedented highs. With such a positive vignette, consumers have considerable room to leverage their balance sheets for faster consumption. For now the record high real income, record low debt service and easy bank credit standards should provide some buffer to temporary black swan events and open the door for irrational exuberance should animal spirits return.

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