For the rest of 2018, the Fed (FOMC) is forecasting little change in the rate of economic growth. ECRI Weekly Leading Index is projecting a slowing economy. Most other forecasts (including our own) are showing little change in the rate of economic growth.
Many forecasts such as the Philly Fed's Professional Forecasters are opinion based. I tend to put more crediability on quantitative based forecasts (such as ECRI's WLI, Atlanta Feds GDPNow, and New York Fed's Nowcast) - although these quantitative forecasts are based on historical relationships which likely will repeat (but not necessarily). The economic future may never be predictable.
What is on my radar recently has been a slowing in the rate of growth of consumer credit. Consumer credit does not include mortages. Knowing that consumer credit fuels retail sales, it is hard to ignore slowing growth.
The graph above has adjusted consumer credit for inflation (blue line). The recent FOMC minutes is misleading (nice way of saying it is wrong):
Financing conditions in consumer credit markets were little changed so far this year, on balance, and remained largely supportive of growth in household spending. Growth in consumer credit picked up in May from the more moderate pace seen earlier this year.
Consumer credit rate of growth is also affected by student loans - as student loan payments increase money remaining for retail sales declines.
Unadjusted Consumer Credit Outstanding
|Month- over- Month Growth||Year- over- Year Growth||Real YoY Growth||Month- over- Month Growth without Student Loans||Year- over- Year Growth without Student Loans||Real YoY Growth without Student Loans|
|Total||-0.0 %||+4.8 %||+2.0 %||-0.0 %||+3.2 %||+0.4 %|
|Revolving||-0.4 %||+4.9 %||+2.1 %||n/a||n/a||n/a|
|Non- Revolving||+0.1 %||+4.7 %||+1.9%||+0.2 %||+2.2 %||-0.6 %|
Taking inflation into consideration - there is almost no growth in consumer credit after removing student loans. I have too little information to be able to predict the effect of the softening consumer credit. But when real consumer credit growth drops below economic growth - my gut is uneasy.
Other Economic News this Week:
The Econintersect Economic Index for August 2018 improvement cycle continues and remains well into territory associated with normal expansions. Our index is now at the highest level since December 2014. There are continuing warning signs of consumer over-consumption.