It is hard to fathom, but the end of the second quarter is just three weeks away. Towards the end of the first quarter, I suggested some clouds on the horizon. Manufacturing had moved into a contraction level. Inventories were starting to rise. January seemed to be a peak in terms of economic activity. Service industries were still growing but at a slower level. Job layoffs were piling up, yet the actual level of unemployed workers continued to stay low. Durable goods orders were being impacted by Boeing orders, however, taking out the static, there was a declining level of both consumer and business investments in longer term goods. The economic reports in March appeared to predict a rapidly slowing economy.
The final GDP number for the first quarter of 2023 landed at 1.3%. The Federal Reserve Bank of Atlanta is currently estimating the second quarter GDP to come in at 2.2%. It is hard to believe, with the recent economic numbers, that GDP will come in that strong. Manufacturing levels continue to contract. However, the level of contraction appears to have bottomed out. New orders are soft. Durable goods inventory continue to increase, particularly in the auto segment. While service industries grew at a moderate level in April, a reading of 52, in May they were essentially a break even.
The earliest numbers for June appear to show a continued softness in the economy. The most recent initial jobless claims could show that all the layoffs that were announced earlier this year may finally be reaching the unemployment compensation level. Whether this was because the layoffs finally occurred or that severance packages have ended is unclear. An interesting twist in this week’s employment numbers was the number of continuing jobless claims. This number fell from 1.794 million to 1.757 million this past week. It appears that job openings continue to be strong enough to absorb many who are looking for work. The next month of labor numbers will give us a better direction as to whether the labor market is weakening or if things will continue.
While the consumer has continued to support the economy with spending, there are some numbers that are a concern. In the past month the overall level of consumer debt surpassed the pre-pandemic levels. Until early 2020 most consumers had a bright outlook on the future and were willing to spend and borrow to do so. The Pandemic stimulus programs provided cash which consumers across the board used to pay down debt, particularly credit card debt. In the past quarter, credit card debt levels across the age spectrum, as well as in total, surpassed the 2020 levels. In looking at the average credit card balance by age group, the breakdown appears static over the survey periods of 2020, through the first quarter of 2023. What I mean by this is that in ranking the age groups, the largest debt to lowest continue to be the same. The age group that continues to have the largest average outstanding balance continues to be those in the 40 to 49 age group. Second in line are those 50 to 64. These are typically the highest income earners and can afford to service the debt levels. The lowest debt levels are those in the under 29 age group with an average $2,900 credit card balance. Next are those over 65 which carry a $4,700 average balance. These are the age groups that are least likely to be able to service debt due to lower income levels.
The 800 lb gorilla in the discussion here is are the increases in average credit card balances, now topping $7,600 in the 40 to 49 age group, due to having a brighter outlook about their future and they continue to spend because of that belief. Or, are various economic influences such as inflation, higher interest rates and housing prices, driving them to balance their budgets with debt? If, across the board, that were the case, you would anticipate the lower income levels to be rapidly increasing their debt balances. However, the youngest and oldest age groups with the lowest incomes actually increased debt at the lowest rate of any of the age groups. Once again, that largest growth in debt was in the higher earning age groups of 40 to 64, those most able to sustain the debt. Time will tell if this continues.
Have a great week.
