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Krista Biernbaum

August 08 , 2017

Gauging the Health of the U.S. Consumer


A nation’s economic growth is measured by gross domestic product, or GDP for short. Driving forces differ for each country. Consumer spending is the dominant force in the U.S., comprising about two-thirds of our economic activity. So how is the U.S. consumer doing? 

Consumer credit balances hit a new milestone in the U.S., primarily due to rising auto and student loans.  Both these categories have been on an upward trend over the past few years; credit card debt has risen at a more gradual pace. However, delinquencies and charge-offs have started to increase. Taking on too much debt restricts a consumer’s ability to spend.

What’s interesting is consumer credit has been on the rise while mortgage debt and home equity loans have been on a downward trend. The divergence between the two is attributed to three main factors. First, mortgage requirements are more stringent than before the financial crisis. The days of low down payment and interest-only mortgages are gone. Second, the significant rise in student loan debt acts as a de facto mortgage payment for many younger borrowers. Lastly, the slow recovery in home values means that equity available to be converted to spendable cash is low.  

Part of the rise in consumer credit can be explained by the chart below. The U.S. economy continues to add jobs at a healthy pace and the labor market continues to tighten. However, wage growth remains lackluster. The divergence between the two is illustrated in the chart below by the Wall Street Journal’s Daily Shot. Tepid wage growth causes more people to finance spending with debt; this is especially true for lower income individuals.


Rising debt burden is a situation we watch closely. However, as of now the consumer remains in decent health. This was illustrated in the second quarter GDP numbers, which showed the U.S. economy growing at an annualized rate of 2.6%. Since the consumer accounts for over two-thirds of GDP, this bodes well for the second half of the year -- and for the financial markets as well. We expect positive, but muted returns for the remainder of 2017, given the strong performance in the first half of the year.

Have you scheduled a mid-year review yet? If not, give a Security National Bank Wealth Management Advisor a call today at (712) 277-6586. We have a great story to share with you.

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