A Deep Look At Revolving Credit, And What It Means For Consumer Spending

This guest post previously appeared at the author's blog, Macrofugue.

As economists or macro-speculators, we try very hard to find indications of behaviour changes, particularly in the marginal propensity to consume, invest or save.

Consider the y/y %-growth of revolving credit and real retail sales, and then further, the difference between the two:

Examining the contrast between consumer spending & revolving credit growth may provide an early-warning sign that the consumer is tapped-out near the end of the cycle.

It is very clear that end-cycles are punctuated by tapped out consumers both lowering spending & increasing their debt as their incomes fail to compensate for economic conditions.  The difference perhaps may be indication that future marginal propensity to save is imminent.  If saving & investing are delayed consumption, is the consumption on credit delayed marginal propensity to save?

Let's take another view into it.  The S&P 500 juxtaposed against the ratio between real retail sales & revolving credit:

What accounts for the decline in the early 90's that did not lead to a recession? To view this, let's view ratio between real retail sales & revolving credit against wage growth:

It appears that if wage-growth can compensate from other avenues, this is possibly sustainable. In the early 90s, a huge boom in private investment fueled wage-growth despite. It pays to understand all of the components of the system.

However, it certainly seems like this ratio has an edge in predicting the direction of wage-growth, and possibly the broader view into changes in the marginal propensity to consume or save.

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Get To Know Japan's Likely Next Prime Minister And What He Means For The Yen

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The ruling Democratic Party of Japan elected another finance minister as its chief, all but guaranteeing that Yoshihoko Noda will become the next prime minister.

Noda has participated in multiple interventions against the strengthening yen, including last week's $100 billion fund to help companies investing abroad.

Despite his record, however, the yen remained strong following the announcement. FX traders may have noted that none of Yoda past interventions were successful in weakening the currency.

Yoda favors raising taxes to deal with Japan's debt and stagnant economy, according to VOA.

Meanwhile the government signaled a conservative monetary policy as Economic and Fiscal Policy Minister Kaoru Yosano said today the Bank of Japan should not underwrite Japanese government bonds: "We have no new medicine. We have to take the same remedies (as taken in the past) to cope with the same illness."

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The Colts Signing Kerry Collins Means Peyton Manning’s Injury Is For Real

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The Indianapolis Colts signed veteran QB Kerry Collins today, according to multiple reports.

The move suggests that all is not well with Peyton Manning, who is recovering from a neck injury but was always expected to start against the Texans on opening day.

The Collins signing draws Manning’s status into question.

There is a glass half-full interpretation — the Colts two backups have been horrendous in the preseason, so this may just be a precaution.

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