Daily Commentary

MarketMinder’s View: According to a Bank of America Institute analysis, the top third of households by income (called “higher-income households” here) averaged 2.6% y/y spending growth in the three months to November, topping the bottom third’s 0.6% growth. The article suggests this gap is more evidence of America’s bifurcated economy—allegedly a problem since lower earners outnumber higher earners. Should spending among the former falter, the economy at large is in trouble. But we have some issues with the data discussed here. First, this is just one outfit’s figures based on its internal credit card data—interesting and useful, to be sure, but not necessarily a comprehensive look at total US personal consumption. Secondly, we think there are some nuances worth being aware of when comparing income levels. For instance, per Census Bureau data, a household earning over $105,000 would be in the same grouping as a household making $1 million or more. But it is hard to see why the two should be together—especially when you consider cost of living differentials that vary a lot by locale. Two, on the “K-shaped” economy thesis, consider: Both segments, per this article, grew. There is no “K” we are aware of where the right two lines both slope upward, just at varying angles. And perhaps most critically, as Todd Bliman noted in our Festivus grievances, all of these individuals exist in the same economy. “Upper-income” folks’ spending cycles through the economy just as lower-income households’, so we find it hard to couch spending growth in general as an economic negative. To us, this is just more hype around a false fear.

MarketMinder’s View: With birth rates falling across much of the developed world, this meandering piece warns of potential stress on the global economy as a shrinking global work force becomes responsible for supporting a growing elderly, non-working population (this includes plenty of sociological discussion, which MarketMinder doesn’t deal in—markets don’t, so we don’t either). Now, the thinking here has its logic, but it also presumes today’s trends are set in stone over the very long term. For instance, it cites today’s rising property costs as a reason for declining birth rates (i.e., expensive property means most couples need two incomes to support their family, discouraging them from rearing larger families). Perhaps! Some of us are very familiar with the pain of high property prices. But this trend won’t necessarily last in perpetuity. What if governments broadly ramp up new housing investment, boosting supply? Or maybe mortgage rates come down, freeing up more existing supply as homeowners previously reluctant to sell warm up to mobilizing. Immigration, technological innovation and productivity gains can also play a role here. We aren’t trying to predict what will happen next, which is also our point: Nobody knows now if birth rates will change over the long term, so it is shortsighted to prescribe economic or societal outcomes to them today. Heck, the article even acknowledges this. It notes Reverend Thomas Malthus’s predicting world food shortages would limit population growth back in 1798, missing how massive agricultural innovations via technology would address those issues. Long-term forecasting—in any capacity—is little more than guesswork, and considering stocks focus on the next 3 – 30 months or so, we don’t recommend basing investment decisions on predictions or projections of what may happen decades from now.

MarketMinder’s View: Before getting into the analysis, let us first share the data, courtesy of the Bank of England. “Net borrowing through credit cards was £1bn, up from £700m a month earlier. Borrowing using other forms of consumer credit – including car dealership finance and personal loans – rose by £100m to £1.1bn. Annual growth in credit card borrowing rose from 10.9% in October to 12.1% in November – the highest rate since January 2024.” This piece doesn’t take an overly alarming tone toward the rise, pinning it mostly on holiday shopping and rising “confidence among households to use borrowing to finance their spending.” Now, UK credit card debt has been bouncy all year long, and the country’s cost-of-living crisis is well known, so signs of some improving sentiment is notable. And from an economic standpoint, the titular year-over-year credit card spending growth is relatively benign. Yes, November’s 12.1% is up from 2024’s levels. But it is down from much of 2023 and well below levels seen in the mid-1990s and early 2000s (per Bank of England)—neither period birthing credit card-related crises. Oh, and as mentioned here, UK bank deposits also increased in November—perhaps a sign that households are taking the chance to build up their savings for a rainy day. No, economic conditions aren’t perfect in the UK, but these data imply consumers aren’t in dire straits, either.