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Amid this week’s clamor around generative AI and its attendant spending by hyperscalers, some interesting data on spending by consumers flew a little under the radar.
Personal spending in September rose a half of one percent. While enterprise spending and the demand for AI is certainly a propulsive force for the economy, now is a good time for a reminder that consumer spending accounts for two-thirds of US GDP. (To be exact, it accounted for 67.9% in the third quarter).
Besides the headline data on spending from the Bureau of Economic Analysis, there are data points aplenty that economists like to explore to try to figure out where spending is going next. That includes a host of metrics on consumer credit.
“I do think there are some signs that the consumer is picking up in strength, and some longer-term signals that we noticed in recent credit data that suggests that the consumer isn’t nearly as stretched as it looked,” Thomas Simons, senior economist at Jefferies, said in an interview with Yahoo Finance. “The consumer is still in very good shape, and I think that we’ll see decent spending support growth in Q4 and into 2025 as well.”
Simons examined data that included total credit card debt outstanding, delinquencies, and the percentage of accounts that are past due in a recent note. He found that for most metrics, trends are in line with the pre-pandemic period.
Of all the data, Simons found most encouraging the number of people paying off their full credit card balances. That stood at 34.6% in the second quarter of 2024 (the most recent quarter for which data was available), down from a peak of 35.7% in Q1 2021. Pre-pandemic levels were consistently below 32%.
“We find this data to be very encouraging as it suggests that millions of people have hit a sort of ‘escape velocity’ with their credit,” Simons wrote. “The ability to pay off a credit card balance each month and avoid paying interest (especially at current levels) is a marker of financial freedom and stability, and it provides yet another piece of evidence that the consumer is not yet stretched to the limit on spending.”
Of course, in this economic environment, spending is a double-edged sword. On the one hand, it’s supportive of economic growth. On the other, it can perpetuate inflation. For now, as our Jennifer Schonberger wrote yesterday, core inflation may be accelerating, but likely not enough to derail the Federal Reserve’s plans to cut interest rates next week.