A Deep Look At Revolving Credit, And What It Means For Consumer Spending

This guest post previously appeared at the author’s blog, Macrofugue.

As economists or macro-speculators, we try very hard to find indications of behaviour changes, particularly in the marginal propensity to consume, invest or save.

Consider the y/y %-growth of revolving credit and real retail sales, and then further, the difference between the two:


Examining the contrast between consumer spending & revolving credit growth may provide an early-warning sign that the consumer is tapped-out near the end of the cycle.

It is very clear that end-cycles are punctuated by tapped out consumers both lowering spending & increasing their debt as their incomes fail to compensate for economic conditions.  The difference perhaps may be indication that future marginal propensity to save is imminent.  If saving & investing are delayed consumption, is the consumption on credit delayed marginal propensity to save?

Let’s take another view into it.  The S&P 500 juxtaposed against the ratio between real retail sales & revolving credit:


What accounts for the decline in the early 90’s that did not lead to a recession? To view this, let’s view ratio between real retail sales & revolving credit against wage growth:


It appears that if wage-growth can compensate from other avenues, this is possibly sustainable. In the early 90s, a huge boom in private investment fuelled wage-growth despite. It pays to understand all of the components of the system.

However, it certainly seems like this ratio has an edge in predicting the direction of wage-growth, and possibly the broader view into changes in the marginal propensity to consume or save.

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