Due to some of the market gyration recently and the particularly downtrodden doom-and-gloom headlines this week, we all need a dose of fundamental perspective about our economy. Enjoy the short communication below!
The U.S. Consumer
Gross Domestic Product (GDP) is the measure of all economic activity over a certain period of time and is the main indicator of a broad economic trend in the U.S. and worldwide. When economists speak in terms of an economy’s size, they are referring to the total GDP generated on an annual basis for any given economy. GDP is broken into a number of components for each country; the U.S. consumption equates to 68% of total GDP. This is largely why metrics gauging the consumer are important economic indicators (consumer confidence is one of these you have probably heard of). The graph here represents a quick look at how the U.S. consumer is currently fairing:
This visual details the balance sheet of consumers as a whole in the U.S.; owning $120.4 trillion in assets and $16.1 trillion in liabilities. While this chart is interesting, it’s more useful to analyze the trend of the separate figures that comprise this macro-level data over time to compare the present situation vs. other historical time periods. From a more granular view, the average U.S. consumer is quite financially healthy compared to the past.
Here’s one example: The average household debt service ratio which is the average household’s debt payments as a percentage of disposable income (a consumer’s take-home pay that could be spent on anything) is quite low from a historical perspective, currently at 9.9%. This is partly due to a few major factors. First, the low-interest-rate environment has enabled most households to refinance debts and thus are paying less interest now than they previously were. Secondly, the underlying strength of the labor market (lowest unemployment rate in the last 50 years) has helped households stabilize their cash flow. Of course, the investment markets have also helped bolster average household net worth substantially over the last decade (increasing total assets held by U.S. households from $83.5 trillion prior to the 2008 recession to $120.4 trillion today) which also combats debt level and solvency.
All-in-all, the consumer is a major factor in the economic health equation here in the U.S. and from many standpoints, the general financial position of households across the country is stronger than it has been in the past. Yet another positive economic fundamental never mentioned by the media!
Graphs Source: FactSet, FRB, J.P. Morgan Asset Management; BEA. Data includes households and nonprofit organizations. SA – seasonally adjusted. *Revolving includes credit cards. Values may not sum to 100% due to rounding. **1Q19 figures for debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Guide to the Markets – U.S. Data are as of March 31, 2019.
Joel Malick currently maintains the Accredited Investment Fiduciary (AIF®) and Accredited Wealth Management Advisor (AWMA®) designations. Joel and his team at Strategic Financial Partners recognize that running this race for the long term is one of the greatest challenges you’ll face in your lifetime. Thus, they combine critical planning and investment strategies with real-life perspectives. Their consultation is provided at no additional cost to 403(b) Alliance Retirement Plan participants.