Dyker Heights (aka Dyker Lights) in Brooklyn occupies a special place in my heart, as I lived and worked in NYC for a couple decades. Before we venture over to my adopted hometown for some holiday cheer, have a look at the most recent retail and indentured consumer data.

For starters, we have Bloomberg’s consumer comfort index plunging the most since 2007-2008, which was before the collapse of Lehman Brothers.

Chart Source: Zerohedge

Next is a comprehensive look at total household debt since 2003, as of 3Q19 from Real Investment Advice. The fact that we are in record territory well beyond the Great Financial Crisis might have you feeling warm and fuzzy while sipping on alcohol-laced eggnog..

“Do you know what else has a high correlation with consumer confidence? Employment… It is hard for consumers to remain confident and continue spending when they lose their source of income. This is why consumer confidence does not ‘go gently into the night,’ but rather ‘screaming into the abyss.’ Are consumers currently keeping the economy out of recession? You bet. Will it stay that way? Probably not. Records are records for a reason. It is where things end, not begin, and all economics cycle… When job losses begin to accelerate, confidence will fall very quickly, as does consumer spending, and then the markets.”

According to the most recent data released by the Federal Reserve, consumer debt grew by $9.5 billion in September. That represents a 2.8% annualized increase and puts total consumer indebtedness to a new record of $4.15 trillion (seasonally adjusted). The Fed consumer debt figures include credit card debt, student loans, and auto loans, but they do not factor in mortgage debt.

During an interview on CNBC last week, the Economic Cycle Research Institute’s (ECRI) Lakshman Achuthan warned that the slowdown in retail sales and industrial production could spell trouble for the economy and consumer in the near-term. My apologies for not having an embedded version to view here, but it is well worth your time to watch the interview before reading any further.

Hard Data Decelerating… “For the U.S. there’s nothing to be optimistic about – except optimism itself. In other words, the rally is predicated on a revival in growth, including solid holiday sales. Regardless of new market highs, there is little objective evidence in the hard data to support that view. Year-over-year industrial production growth in manufacturing is deep in negative territory and at a 3½-yr low. Real retail sales growth is also falling. The whole economy-is-fine story hinges on healthy consumer spending offsetting the weakness in manufacturing, but both continue to slow.” – ERCI

A Bull Market and the Bear – Dow and S&P 500 Technical Analysis… “Despite domestic and global economic data points that signal Goldilocks is not necessarily a happy camper, the Federal Reserve’s “Not QE” has pushed the U.S. stock market to new highs.” – TraderStef, Nov. 19

Looking at total retail sales including ecommerce since 2000, they rose 4% year-over-year in 3Q19.

Despite the boom in ecommerce sales, they only represent 10.5% of total retail sales. Approximately half of total sales occur at gasoline stations, motor vehicle and part dealers, and grocery and beverage stores. The majority of remaining sectors in brick-and-mortar retail are feeling the ecommerce pinch in a big way. Year-to-date announced closures of brick-and-mortar stores already exceed the total recorded in 2018. Coresight Research estimates that announced store closures may reach 12,000 by the end of 2019.

“Among the top 10 ecommerce retailers, behind Amazon and eBay, are the online divisions of seven brick-and-mortar retailers, according to eMarketer, in that order: Walmart, Apple, Home Depot, Best Buy, Macy’s, Qurate Retail Group (QVC, HSN, Zulily, Ballard Designs, Frontgate, Garnet Hill, and Grandin Road), Costco. The 10th in the top ten is Wayfair, an ecommerce retailer.” – Wolf Street, Nov. 22

As a reminder, the consumer is 70% of U.S. GDP and 4Q19 GDP data is threatening to print at the lowest level in four years.

Econ Data is Burning, and Gold Technical Analysis for Luddites… “Interest rates remain near ZIRP or are NIRP around the world, the Fed is printing liquidity into the financial system at a quicker rate than during the Great Financial Crisis, one TBTF bank let a cat out of the bag by forecasting an economic collapse due to the Fed’s “not QE,” and global debt surged to $250 trillion. With all that said, Jay Powell made it very clear last week that inflation is the bellwether for monetary policy decisions in the near-term unless some other risk brewing on the world stage steals the show. Additional data doom can be found at “A Mashup on the National Debt, GDP, Velocity of Money, NIRP, and Gold,” published on Oct. 30.” – TraderStef, Nov. 15

As the Fed’s TaperCaper morphed into the new “Not QE” campaign and a lower Fed funds rate, credit card interest rates remain elevated and rising. The highest interest rate for online savings accounts is NIRPy because the current Core PCE Inflation rate is 1.7%. Since a recent survey found that 84% of Americans would use credit cards for holiday shopping and reduce their spending this year, the retail holiday season may not be so jolly for the financial market in 2020.

Holiday Shopping Takes a Hit, But Reliance on Credit Purchases Remains Strong… “Survey reveals that 84% of Americans will use credit cards for their holiday shopping in 2019. With the holiday season right around the corner, it seems many Americans might be saying ‘Bah, humbug’ to the time-honored tradition of gift giving, with planned spending down nearly 30%, according to the second annual Holiday Retail Report.”  – TD Bank, Nov. 21

Revolving debt is primarily credit card balances, which have fallen for the second month in a row and are the first back-to-back months of decline since 2012. The slowdown in borrowing has fueled concerns, as Lakshman Achuthan pointed out during his CNBC interview. If employment takes a dive with layoffs in the coming months, the official announcement of a recession is likely in the cards at some point next year.

U.S. September consumer credit grows at slowest rate in 15 months… “Consumers pulled back on credit-card use for second straight month… With business investment sagging, all eyes are on the consumer to keep the expansion on track. Fed Chairman Jerome Powell told reporters last week that the Fed has not seen the weakness from business spending ‘getting into the consumer side of the economy.’ But many economists worry about increasing layoffs in coming months.” – MarketWatch, Nov. 7

The slowdown in borrowing might indicate that consumers are tightening their belts and weakness is already seeping into the consumer side of the economy. Alternatively, it could be that consumers maxed out on the plastic and are unable to push balances too much higher. The bigger picture is that the drop in consumer confidence in tandem with a decline in borrowing as the economy approaches the biggest sales season for retail is just bad news. But have no worries because Christine Lagarde says NIRP is awesome and “we will be happier to have a job rather than having a protected savings,” and Gary Shilling says “millennials should be happy they are stuck renting.”

We will see what happens when Black Friday weekend sales chime in and the remainder of the year plays out. In the meantime, do make an effort to find a Christmas light celebration in a neighborhood near you and enjoy the beauty of the holiday season.

Brooklyn’s Dyker Lights is New York City’s Biggest Christmas Display…

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