Personal Wealth Management / Expert Commentary

Fisher Investments Reviews What Rising Consumer Debt Means for the Economy

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, explains why current consumer debt levels aren’t a harbinger of recession. While some investors focus on absolute debt levels, Ken thinks it’s important measure consumer debt relative to total assets—household balance sheets. Ken acknowledges consumer debt has risen recently, but stresses consumer balance sheets have been gradually improving for several decades and are still healthy today.

According to Ken, today’s investors are biased to look for problems, even where none exist. Therefore, Ken believes heightened concern about perennial issues—such as consumer debt levels—indicates investor sentiment remains skeptical, which is typically a positive backdrop for stocks.

Transcript

Ken Fisher:

So when I talk to people. There's questions that come up about things that I've never heard before. And there's questions that just always come up. And the questions that just always come up. Are inherently more about our cultural biases than they are about the subject that's being discussed. I could rattle through a whole long laundry list of them. The one that comes up all the time is don't consumers have too much debt? And isn't consumer debt a harbinger of recession ahead?

Now I'm going to tell you that that question comes up no matter what the condition of consumer debt is. It's just a statement about the way our culture thinks about things. Let me say this differently. I don't care how you slice it. This way. That way, the other way. Any important way you slice it. The consumer's balance sheet is better off by far than it was ten, 20, 30, 40 years ago. Consumer has irregularly been improving their balance sheet. Not every month, not every quarter, not even every year. But irregularly improving its balance sheet now for four decades. Debt as a percent, consumer debt, as a percent of personal income or as a percent of GDP is down. Is it up in the last year? Yeah, a little bit. But if you look at that longer time scale it's been down down, down, down down with volatility along the way.

If you think of the sub categories. There are a few of them that have kicked up a little bit. This year and last, but still to levels that are far lower, like credit card debt, but still to levels that are far lower than they were 10, 20, 30 years ago compared to the assets that they have compared to their income stream. The fact of the matter is, the consumer is in better shape. So the fear that the consumer isn't is in and of itself a statement that shows you we're not an overly optimistic society at this point in time. We're still pretty skeptical. We're culturally biased to look for the problems. And particularly to look for them where there are no problems, where things are better than they've basically been for a long time. Other than that, they're a little bit worse this year than last. That normal kind of volatility that's happened as things have been getting irregularly better for some decades now.

Thank you for listening to me. I hope you found this educational and useful, and I hope you don't spend a lot of time worrying about consumers in the period immediately ahead.

Voice of Ken Fisher:

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