Is the Economy Strong or Weak? Are you Prepared?

Economic Indicators and Consumer Preparedness Charts

This article contains two types of charts: the first set covers key economic indicators, and the second set reveals how consumers may be unprepared for a financial downturn. Our goal is to help you better understand the overall economy's strengths and weaknesses through these charts. Each chart includes 2-3 data points detailing its specific aspects. What we hear and see might differ, but you can judge for yourself with the data below.

This chart shows the year-over-year percent change in an index of leading economic indicators.
This indicator usually turns negative several months before a recession as the economy decelerates.
This pattern is also evident over the prior seven recessions and is the result of the economic cycle.

This chart shows indices of economic activity - both manufacturing and non-manufacturing.
Numbers above 50 represent economic expansion while those below 50 suggest contraction.
The broader economic slowdown of the past two years can clearly be seen in both indices.

Unemployment is near the lowest level in over 50 years despite rising rates and broader economic challenges.
Even the so-called under-employment rate has fallen to near-historic lows as jobs remain plentiful.
The labor market remains strong despite higher rates, resulting in what many investors refer to as a soft landing.

This chart shows the University of Michigan Consumer Surveys. There are indices for sentiment, current conditions, and expectations.
Consumer sentiment is an important indicator. Consumers tend to do well when the economy and markets are doing well, and vice versa.

Industrial production is an important indicator of economic activity.
Similarly, capacity utilization tells us whether there is spare or excess capacity in the system.

Student and auto loan balances have increased at the highest rates since 2003.
Over the past 20 years, total non-mortgage consumer debt has more than doubled.

Household savings are the flip side of spending. They are important for financial health.
Savings rates have remained high during the economic recovery.

Air travel has rebounded as travel bans are lifted.
Activity is now back to pre-pandemic levels which is good news for economic growth.
Whether travel expands further will depend on business activity and personal travel.

In Conclusion

The economy is showing signs of weakness in the Leading Indicators, Economic Activity, Consumer Sentiment, and Industrial production charts. Unemployment on the other hand has remained very low, although it has been ticking up over the last several months. Because most people who want a job already have one, the consumer has continued to spend, as indicated by the increasing number of travelers going through TSA checkpoints. The issue we see is consumers are saving less and increasing debt to continue their spending. According to the Federal Reserve Bank of New York’s latest Household Debt and Credit report, delinquency rates across all consumer debt levels increased in the first quarter of the year. While mortgage debt, student loan debt, and home equity loan delinquencies remain around their recent trends, credit card and auto loan delinquencies have jumped.

Specifically, 8.9% of credit card balances have become delinquent over the past year as some consumers have struggled with payments. This is much higher than the 10-year average of only 5.9%. Credit card balances declined slightly in the first quarter of the year but still total $1.1 trillion, 13.1% higher than just a year ago. Similarly, auto loan delinquencies have increased to 7.9% with the total amount of auto loan debt growing 3.5% year-over-year to $1.6 trillion.

While there is no sure way to know if we will have a recession or how bad it may be, we can prepare for the possibility by reducing debt and increasing savings.