News of the consumer's death has traveled fast.
It's not hard to find stories of beleaguered and battle-wearied consumers. Famed retail giants are slashing revenue and earnings outlooks, creating worries about retail space in general and malls in particular. Auto sales are slowing, auto loan delinquencies are rising, while delinquent student loans create their own paroxysms of fear in analyst minds.
But, just as with many negative forecasts over these past eight years, the news of the consumer's death is greatly exaggerated. On average, consumers are in good shape.
The best news for the consumer is that the labor market continues to heal. At 4.4%, the unemployment rate is the lowest since 2007. Some watch what they call the "true" unemployment rate, which includes discouraged workers as well as part-timers who claim they'd prefer full-time jobs – that's 8.6%, also the lowest since 2007. Meanwhile, wages and salaries are up 5.5% in the past year, outstripping inflation.
Meanwhile, consumer debt burdens are down. The Federal Reserve keeps track of the "financial obligations ratio," which measures the share of after-tax income consumers need to meet monthly debt service payments plus regular (non-debt) payments such as renting a home, leasing a car, property taxes, and homeowners' insurance. At 15.4% of after-tax income, these payments are near the lowest since the early 1980s.
Yes, serious (90-days or more) auto loan and student loan delinquencies are at record highs. But serious delinquencies, for all loans – including auto and student loans, plus mortgages, home-equity, credit card, and other consumer debts are down substantially in the past seven years, to $415 billion at the end of 2016 versus $1.04 trillion at the end of 2009.
Don't get us wrong. The rapid and persistent rise in student loan debt is a problem. Some indebted students are finding they must put off borrowing to buy a home, for example. But these loans pay colleges and universities to employ professors and administrators who spend it, meaning it's a transfer payment to the self-described "educator" class.
Unlike a subprime loan that facilitates the building of a home (an asset), the real problem with student loans is they often generate a product that decries wealth creation. But that's true whether they borrow the money they use to pay for college or pay for it out of their own pockets (or their parents').