When the lights are turned off in the living room, the outcome is acknowledged by everyone - it's dark. But what happens when the lights in the living room are controlled by a dimmer switch which reduces brightness very slowly and over a longer time period?
There is a dimmer switch behind the US economy.
The US consumer: almost 70% of US GDP
The US consumer has been frequently called resilient despite the US consumer facing higher expenses across major expense categories.
The main choice in front of the US consumer: purchase or rent the primary residence.
Purchasing a house has become more expensive.
Since January 2020, the monthly mortgage payment on a typical U.S. home has nearly doubled. It’s up 96% in just four years.
Adding home insurance to the monthly housing expense.
Home insurance rates are up 38% since 2019. In Illinois, home insurance rates are up more than 55%.
Renting a single family home has also become more expensive.
The cost of renting a single family home has increased by 30% since 2020. .
US consumers which choose to rent face the same headwinds.
Rents jumped 30.4% nationwide between 2019 and 2023, while wages during that same period rose 20.2%,.
Driving to work has become more expensive.
Since 2020, gasoline prices have risen by about 50%.
TerraManta always asks its audience to make their own conclusions about inflation.
US consumer: chooses higher debt to maintain lifestyle
At the beginning of 2024, U.S. household debt reached a record high of $17.3 trillion, according to data from the Federal Reserve Bank of New York (NYFRB).
The largest increase in any category was credit card debt, which swelled by 16.6% between Q3 2022 and Q3 2023, the most recent term for which federal data was available.
Home equity revolving credit saw the second-largest increase, growing by 8.4% over the same period. Auto loan and mortgage debt increased by 4%, while student loan debt saw a modest rise of 1.6%. Household debt in the “Other” category — which includes retail cards and other consumer loans — also saw a substantial increase of 7.7% on the year
That's why the US consumer has been called resilient again and again. Yet the early warning indicators are on the horizon: Federal Reserve Bank of Philadelphia that recently reported that the percentage of credit card balances that are 30 days past due has risen to nearly 3.5%, which is highest level going back to 2012. Figure 1 plots such credit card delinquency rates by days past due.
Yet debt is not wealth.
So - what's next?
TerraManta is in the business for forecasting commodity prices and commodities - such as energy and food - represent a considerable share of US consumer's wallet.
Using a proprietary machine learning platform, TerraManta analyzes all cross sections of global economy to gain a deeper and more accurate perspective on wha influences commodity prices.
This is a partial preview of what US consumer may experience in the future.
The path to the next recession
TerraManta perspective:
The US consumer will delay purchasing cars, houses, and other expensive items.
Companies which depend on US consumer spending will begin to allocate more capital to stock buybacks to increase earnings per share - a closely watched metric. S&P Dow Jones Indices expects S&P 500 companies to repurchase some $885 billion in stock in 2024, with more than $155 billion in purchases announced in just the first 6 weeks weeks of the year.
When that doesn't work, the stock markets will react with a likely 30% correction.
Companies will reduce costs to improve operating margins, increasing the pace of layoffs.
Homeowners with mortgage rates below 4% represents 60% of all borrowers. These are the same homeowners who are unwilling to sell their home today, creating an artificial inventory shortage. Why sell the existing home and double the mortgage payment? However, many of these homeowners will be forced to sell their house as a result of job losses
The cycle of lower corporate earnings, higher layoffs to further reduce costs, and further inability of the US consumer to support 2/3 of the US GDP will continue.
Can the US government help delay the recession or make it less painful?
The debt load of the U.S. is growing at a quicker clip in recent months, increasing about $1 trillion nearly every 100.
May be. But where will the money come from?
Commodities ran, run, and will run the world
TerraManta is the only company which applies machine learning to forecast commodity prices by continuously learning how geopolitical events influence fundamentals (supply, demand) and result in a price action as evidenced by markets behavior.
TerraManta welcomes serious inquiries from investors who want to see machine learning solve real problems in today's world.
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