Giving Credit To The Consumer

The strength of the US consumer has underpinned much of the current bull market in stocks. In recent months, rising real disposable income (DPI) has fueled consumer spending even as the excess saving accumulated during the pandemic was depleted. Debt service payments have remained below 10% of nominal DPI from Q1-2020 through Q4- 2023. That's relatively low because many households cleaned up their balance sheets following the Great Financial Crisis (GFC) (chart). Many also refinanced their mortgages at record low interest rates during the pandemic.

We monitor numerous indicators to assess the outlook for consumer spending including credit usage and inflation expectations. New data released by the Fed today provide insights on both fronts. Here's our take: