Financial Conditions are Tightening on the US Consumer

May 16, 2018
By Bryce Coward, CFA in Economy

Rising oil prices, food prices and interest rates are likely to soon start taking a toll on the US consumer. Over the last year, gasoline prices are up 28%, the price of cornerstone crops like corn, soy and wheat are up between 5-16%, credit card interest rates have moved to an eight year high of 13.6% and the all important mortgage rate has risen to nearly 5%. But the reason price growth in staple items/rates is now so important is because the US household savings rate has moved from 10% to just 3% since 2012. This means that the margin of safety, or households’ ability to absorb tightening of financial conditions, is severely limited relative to even a few years ago. Absent a move higher in wages, commodity and rate inflation are likely to continue to force the savings rate toward the historic lows.

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