- Economic growth is slowing but the consumer continues to spend.
- Housing has been positive with new construction at its best in a decade.
- Consumer credit defaults are rising.
Economic growth is slowing, but the consumer, responsible for 90% of this year’s growth, continues to spend, and November saw an upward trend in spending fueled by an upward trend in income growth. Inflation remains contained and well below the Fed’s target, which reinforces that rate policy is likely to remain stable.
Housing positive: Housing has been one of the best upward trends for 2019, but the existing home market is running out of supply. Thankfully new construction continues to increase and is at the best level for the decade.
Credit defaults rising: Consumer credit default rates for mortgages and auto loans are up year over year but remain well below the worst from the Great Recession. However, the higher auto default rate combined with record auto loan volumes means that the absolute number of defaults is increasing substantially.
Consumers upbeat: Consumer sentiment has rebounded as we end the year, which suggests that spending is likely to remain strong through the holidays and to start the year.
Mixed year-end: Across all factors, some things are better, some things are worse, but we’re ending 2019 better than we ended 2018. Think of these contrasts: record highs stock indices vs. 20% selloff; Federal government funded for full fiscal year vs. shutdown; diminishing trade uncertainty vs. escalating trade wars on many fronts; and, last but not least, the Fed having raised rates for the fourth time in a year and threatening at least two more increases vs. lower rates after three cuts and stability ahead.
Looking ahead: This report is the last of the decade. But don’t worry too much about that decade-end hyperbole, as I’ll be back in two weeks on January 3 to reflect on December’s employment report and preliminary readings on new vehicle sales. I will also review any critical new info missed this week in new home sales, pending home sales and consumer confidence in case they merit a mention.