Musings

28 August 2015 - 16:43, by , in Uncategorized, No comments

2nd Quarter GDP was revised up this week from an annual pace of 2.3% to 3.7%.  Some of this increase arose from an increase in consumer spending, in particular housing and autos.  So let’s look at some trends in consumer behavior.

The financial crises of 2008/2009 was bought on by excessive debt.  Debt is still the major problem around the world and is claimed to be a panacea to boost short term consumption but acts as a head wind for long term growth.

As you can see from the charts below, a lot of the growth in auto and homes is being fueled by increasing debt.  Once the journey down the path of debt fueled consumption begins its a hard habit to break.

In the long run this will lead to a head wind on future growth and we will be stuck in a low growth environment. In addition to the slow down in growth it will also provide an environment that will be difficult to raise rates into, as it creates a positive feedback cycle of low growth and increased debt service.

Total Revolving Credit

We can see that the consumer has started to borrow more money again

Now lets look at auto loans:

Total Auto Loans

rate on auto loans

Loads more debt than during the financial crises, but at lower rates.

And we are beginning to see a resurgence in the demand for sub – prime loans.

Sub prime demand

 

About author:
Damien is the founder and owner of Lanyon Advisory Services and has a extensive knowledge and experience in financial planning and wealth management.

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