Earlier this month the FED announced that American’s credit card debt hit a historic milestone of $1 trillion in the second quarter (chart below). In no time, CNN, The Wall Street Journal, Reuters, CNBC, and the Washington Post ran this cautionary signal up the flag post. Yet, it is unfair to take this figure out of context. In 2003, the Average Car price in 2003 was $22,260, a Big Mac cost $2.39, and a gallon of gas was just $1.554. Today, that same car, Big Mac, and gallon will cost you $48,808, $5.17, and $3.72, respectively. Looking at these things in relative terms, while Consumer Debt increased 48% in the 20 years from 2003 to 2023, Cars, Big Macs, and Gas went up 116%, 139%, and 119% (table below). Looking at it this way, it seems like consumers could have ratcheted up their debt even more.
The chart below shows Consumer Debt in a more reasonable context. The solid blue line shows nominal consumer debt, while the dashed blue line shows consumer debt discounted by the CPI rate. Looking at it in real terms, one can see that consumer debt relative to prices has remained fairly stable.
Sources:
https://blog.cheapism.com/average-car-price-by-year/amp/
https://www.eatthis.com/big-mac-cost/
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m
Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.
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