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Inside the Economy: U.S. Household Debt, Labor, and Markets

By February 21, 2024February 22nd, 2024No Comments

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This week on “Inside the Economy”, we evaluate the various levels of Consumer debt and trends in the Market. Recent news has shown the appearance of layoffs in the market, but overall layoff numbers continue at 1%. Are we in crisis mode in the labor market? U.S. Household Debt has risen; however, most is held in Mortgage debt. Is the increased consumer debt an issue according to household liabilities and category of debt? Tune in to learn more!


Key Takeaways:

        • U.S. Household Debt at $19 Trillion
        • Bank Deposits equal $17.5 Trillion
        • S&P 500 reached a 1.6% year over year Growth Rate

Full Transcript:
Welcome to another edition of Inside the Economy!

I’m Larry Howes. Thanks for joining me. I want to talk about the mysterious labor market right now and the corporate side of things. As the stock market picks up, there’s a lot more focus on what’s going on in corporate America and a couple of questions and issues at the end.

Quick look at the numbers. There’s not a lot of drama. Initial unemployment claims are down. There’s no pain in the labor market. We’re still at 3.7. CPI came down a little bit, kind of en route. Yields everywhere are up. Treasuries are up. That means the price is down. That means a lot of things. But if everybody is anticipating when the Federal Reserve is going to make money cheaper or lower rates, we don’t have a lot of those ingredients yet. Clearly the core PCE came in. Yeah, it’s down. That’s fine.

We’re all familiar with the drama is over. It’s a question of how close we get to the Federal Reserve’s target rate of 2%. I said even a year ago that it was going to take a little pain to get there. And one of the things I’m going to talk about today is we haven’t seen the pain. There’s been a fair amount of conversation on, oh, look at all the layoffs. There aren’t any substantive layoffs. You get a lot of discussion in the media about how all the technology companies are letting people go, Nike, all kinds of things. It’s trivia.

The numbers are small. These people are not tossed out in the street, especially on the technology side. Some of them don’t even need jobs and they find them elsewhere. The labor market is very healthy. It’s robust. There’s lots of options. So there isn’t a big drag in labor. And a lot of people unemployed or spending would slow. And spending has not slowed. Debt has grown into a big number. U. S. Household debt, it’s a big number. See it there.

Well, relative, just like we’ve talked about federal debt in the past, the number in isolation doesn’t mean much. It is kind of relative, and I’ll get to the sources of that in just a second. But disposable spending, and spending is the important thing. It’s come way down. And it’s come down to a level where basically people are spending all of their disposable income.
In some respects that’s a good thing. They have confidence in the future. They have a confidence in their employment. They don’t have too much debt. It’s a good environment for an economy that’s built on consumer spending. What they have is mortgage. This is the breakdown of consumer debt. 70 plus percent of it is mortgages. The number is up because houses are expensive, people have bigger mortgages, they pay them the rest of the numbers, the credit cards, auto loans, student debt is small. It’s not a big issue, it’s not a bubble. There’s not a lot of pain here. We don’t have consumers that are afraid to spend because they’ll run out of money. That’s just not the case.

There are some delinquencies, and I talk about this not all the time, but frequently conventional mortgages go down to the bank, borrow loans out of a bank, meet their qualifications to borrow money. Their delinquencies are almost nil. The only loans that have noticeable delinquencies are FHA loans and they always have noticeable delinquencies. It’s the nature of the borrower, it’s the nature of the property that most FHA loans purchase. You know the rest, everything else, VAs, conventionals, they’re paying their mortgage, they’re not stressed.

Bank deposits are back up. We’re 17 plus trillion dollars sitting in the bank. Some of that is stimulus money. A lot of it is stimulus money. As you know, when stimulus money goes into the system, it goes from one account to the next. It’s still in an account, it’s just somebody else’s account, it’s still sitting there. It’s a lot of money.

Ten years ago, if we’d had $17 trillion sitting in the bank, I’d say we were in a liquidity trap and have a problem. I don’t believe that’s the case today because there’s a fair amount of spending and spending growth going on. But anyway, there’s a lot of money in banks. Banks aren’t starving for assets. Banks are just looking for places to invest their money to pay interest on those deposits, which they are now. And this is very indicative because I follow this market, MBS. When you see MBS, that means mortgage backed security. When the bank gives you a mortgage, you sign the paperwork, 15 minutes later it’s securitized, it’s in somebody’s QCIP and available to invest in. That’s known as a mortgage backed security. They are extremely popular, they’re very valuable.

And right now the people that are buying the most mortgage backed securities are banks. They have a good yield. It’s just sort of an interesting piece of confidence. Banks are in pretty good shape. They’re well collateralized and they’re just trying to keep their depositors happy and figure out a way to invest all this money.

Some of the problem, and really I shouldn’t use the word problem in the labor market, is there’s a lot of stimulus going on. The blue up here is government spending. We knew what the government spending was when we had COVID, but there’s been a fair amount of supplemental ones. Oh, build semiconductors, a program to stop inflation, a number of other things. Either way, it’s government spending, it’s stimulus money. That’s the kind of administration, and that stuff comes and goes.

It’s inflationary. Anytime you put money in the system, new money in the system, it dilutes the dollar, it’s inflationary. Okay, we’re fighting that battle right now and slowly winning. We are. And boy, do I not want to get in the political arena. But we’re likely looking at the next administration being spending prone, which is a little inflationary.

Again, we’re not finding reasons for the Federal Reserve to make money cheaper to stimulate more transactions. We’ve got plenty and we’re at five and a quarter right now. This particular slide is all about the deficit spending that the federal government has been doing, and it’s going to do for, well, let’s call it the foreseeable future. It is inflationary. It is the type of debt that’s different from the federal debt. When you make a deposit at the bank, it’s accounting debt because they had to print money to pay all the bills.

On the corporate side of things, we are starting to see a growth turn in earnings. Yay! We’ve certainly been looking for this for several months, but earnings have turned positive again. They’re starting to grow again. This is a primary driver of stock value. Unfortunately, where we are right now, and this is forward PE ratio, we’re above the norm around 20. That means we’ve already made a lot of money on the stock market in anticipation of better earnings. We’re going to have better earnings, but that doesn’t mean that the market is going to continue to drive like this. We’re a little ahead of the game right now. Yeah, expect another little correction.

Corporate America has accumulated a lot of debt in the last, let’s call it decade because money’s been free or certainly inexpensive. Any reasonable corporation put a bond out at 4%. Right now they’re servicing that debt with the interest they’re earning on their cash. It’s a pretty good corporate environment. The number is pretty big, but it is not an issue corporate America continues to do well.

A couple of questions.

One is, well, what have yields been? This is about treasury yields. This is treasury yields, corporate yields, junk bond yields. I know it’s a complex graph, but where we are right now, you see that the yields are up fairly high, fairly high for a number of years. Fairly high. That’s a good time to buy a bond. You can buy a bond, lock in a good yield, good income, and if you’re in an environment where the likelihood is interest rates will either stay where they are or go down more than they would go up.

And I think we’re in that environment. Stability or reduction, it’s a good time to own a bond, because when yields come down, the prices of those things, okay, that’s what’s happening in the bond market right now. There’s a lot of money going out buying yields. They’re buying mortgage backed securities. They’re buying anything they can get their hands on, because this time next year, we won’t have these kinds of yields. Yields will be lower; the Fed will have lowered rates. And today, I’ll tell you, we’re looking at September. Assuming we find some bad news someplace between now and there. We just haven’t.

Quick question about commercial real estate on the media a lot, United States. The world has problems with commercial real estate after COVID. And most of the problem right now, and this is the EU, is Germany and France. They have the same types of office buildings and financing, but the debt structures are different.

And the banks aren’t nearly as well capitalized as they are in the US. They have some issues they haven’t been able to transition on how to repurpose office buildings, hospitals, malls, that kind of stuff. The US seems to be doing a pretty good job. It’s not washed through the system yet. And there are some small banks out there that have large exposure to commercial real estate, but they’re perfectly well aware of it.

Most of them are very well capitalized, and there’s a lot of effort out there on the part of these people in the commercial real estate business. They’re not stupid. They know how to repurpose things and not lose a lot of money in the process. This is simply the rest of the world.

An interesting thing came up. This is about cicadas. If you want to make a little study about nature’s tree trimmers, that’s what a cicada is. They come out, especially around nice hardwood trees, and trim the trees off every 17 years. Every 13 years. I mean, whatever it is.

Well, there’s this year the broods, as they call them, the groups of cicadas are coming out. Two different broods are coming out this year. There’s going to be lots of them. It’s going to have an impact on some commodity prices, some food prices. It’s going to be an interesting thing in the media, but it is focused on the hardwood forests on the east coast and some places in the mid-west and here.

And finally, one of the things that people are starting to notice is the increased cost in their homeowners insurance. And that’s certainly on the commercial side, too. But the biggest media pieces are in homeowners California and Florida has seen double tripling prices their homeowners, some of that’s for floods, hurricanes, whatever it is. But this is tracking of fires caused by utilities, bad grids. It’s kind of a big deal. It is a growing concern that’s also going to be priced into homeowners in these states: Georgia, Texas, Louisiana, especially California, Michigan.

Okay, well, that’s enough. Thanks for joining me, as always. Send a question along to Be happy to deal with it.

Thanks for joining me!

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