The economy is in a slow burn. You can’t even see the flames. But you can smell whiffs of smoke every now and then if you’re paying attention. In this episode of the Friday Gold Wrap, host Mike Maharrey calls attention to that smoke with a breakdown of August’s CPI and some other data that came out this week. He also busts a myth about silver.
In July, the mainstream financial media breathlessly reported that consumer spending was “holding up” based on better-than-expected retail sales. But how did consumers manage to spend all of that money?
They borrowed it.
After a pause in June, American consumers went back to charging up their credit cards in July.
One of the reasons Americans were able to continue spending even as price inflation raged was they saved a lot of money during the pandemic lockdowns. But those savings are nearly depleted, according to a study released by the Federal Reserve Bank of San Francisco.
Aggregate savings peaked at $2.1 trillion in August 2021. As of June, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.
Flashing another recession warning sign, credit card spending suddenly fell off a cliff in June.
American consumers have been using credit cards to make ends meet for months, but with credit card debt at record levels, rising interest rates appear to have slammed the door on spending. Credit card debt contracted in June for the first time since April 2021, according to the most recent data released by the Federal Reserve.
Despite the high interest environment intended to slow down borrowing, American consumers continue to run deeper and deeper into debt as they cope with sticky inflation.
Consumer credit spiked by another $20 billion in April, a 5.7% increase year on year, according to the latest data released by the Federal Reserve.
Total household debt eclipsed $17 trillion for the first time ever in the first quarter of 2023 as Americans wrestle with persistent price inflation.
After charting the biggest rise in 20 years during the fourth quarter, household debt climbed again in Q1, rising by $148 billion. The 0.9% increase pushed total household debt to $17.05 trillion, according to the latest data by the New York Fed.
In January, retail sales came in much hotter than expected. Now we know how consumers paid for the spending spree. They put it on credit cards.
After slowing modestly in December, growth in revolving debt spiked again in January. But a slowdown in non-revolving credit moderated the overall increase in consumer debt.
Overall, this signals a pretty bleak trajectory for the economy.
After charting its biggest increase since 2007 in the third quarter, household debt surged again in Q4 as Americans try to borrow their way out of the squeeze soaring price inflation has put on their wallets.
Total household debt rose by $394 billion in the last quarter of 2022, according to the latest New York Fed Household Debt and Credit report. It was the biggest quarter-on-quarter rise in two decades.
The CPI data for December buoyed markets and raised hopes that the Federal Reserve is winning its war against inflation. But in his podcast, Peter explained that the Fed isn’t winning the war. It is losing and will ultimately surrender to inflation.