Will COVID Prove to be a Consumer Behavior Changing Experience?

CAMS Weekly View from the Corner – Week ending 4/2/21

April 5, 2021

With the holiday shortened market week we thought it timely to step back a bit and ask, curiously, if the collective Covid-19 experience will end up changing societal behaviors, on a trend basis, and if so, what behaviors will be notably different.

It is not unusual for humanity to change well established behaviors when a real shock upends the collective status quo as what previously was their norm of living.  Just one well known example was the depression era people and their follow-on frugality.  The roaring 20’s would have never suggested collective frugality was right around the corner.

Our current day curious question, as we look forward, is relative to the American consumer.  Said consumer has been known for a long while to carry the consumption baton, in particular, when compared to other nations.

In addition, they have also been known, in their tremendous consumption efforts to have simultaneous highly levered personal balance sheets.  This is also known as being in debt up to their eyeballs. 

Are they de-levering?  If so, will this stick and have staying power or is it a one-off short lived change?

Click For Larger View:  https://fred.stlouisfed.org/graph/?g=CSOl

Above is a view within overall consumer debt broken down to revolving debt, i.e. credit cards.  This depicts the previous five years and shows the year-over-year growth rates for credit card debt.  It has been well recognized the American consumer has carried high levels of credit card debt in recent years if not decades.

What are customary 5-10% growth rates has cliff-dived into incredible deceleration.  Is this the start of collective behavioral change?

One common reply from citizens relative to expected uses of the various stimulus checks has been to pay off or reduce credit card debt.  That has certainly occurred via the data. 

Interestingly, simultaneous to the notable deceleration in credit card growth we have also seen a tremendous pick up in the personal savings rate. 

It is too early to tell if this will prove to be collective behavioral change for consumers but to this point in time the various stimulus checks have been used in a significant way to pay down credit card debt and to increase savings. 

Are we talking about the American consumer here? 

This would be a fair, knee-jerk reaction type of question relative to what has become expected in light of a long trail of levered consumption trends.

Realizing nearly 70% of the U.S. economy is consumption based it will be notable to the economic structure if the above early signs of collective frugality do actually become a trend.

If collective frugality is entering the economic scene and has staying power, then that nearly 70% of the U.S. economy the collective consumer is known to uphold may be reducing in size. 

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

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