Categories: Stock Market
Topics: Inflation Stocks

Is This the Turning Point?

Could the economy finally be at the turning point? 

That seems to be the question on the minds of many for the past week, thanks to some signs that things have been slowing down. 

First and foremost is the recent jobs report. The numbers showed that employers added 187,000 jobs in August and that the unemployment rate rose to 3.8%. So the market has been holding steady, but the longer-term trend shows that growth has been slowing. Earlier in the year, job growth had a monthly average of around 312,000. As of now, that average number is closer to 200,000. As we exit summer and head toward the end of the year, that cooling trend could continue and contribute to a growing sense of pessimism in the economy. 

Then, if that wasn’t enough, there have been other economic indicators that show things may finally be taking a turn. 

In the New York Fed’s recent quarterly debt report, they revealed that credit card and auto loan delinquencies have crept up to the point where they are higher now than they were before the pandemic. 

The cost of living has been rising and wages haven’t been keeping up. Americans have been relying on putting payments on their credit cards just to make ends meet, and the whole cycle is causing more people to fall behind on their payments. 

In just the second quarter, credit card debt has gone up by $45 billion to reach a record $1.03 trillion. The Fed’s string of rate hikes have only added to the pain, making it more expensive to not just carry those credit card balances, but car loans and mortgages too. With average credit card rates now at around 24%, it’s no wonder why payments are falling behind for many people. 

The average rate for a loan on a used car is now around 7% and there are a growing number of consumers who have monthly car payments of $1000 or more.

On top of that, there isn’t much time left before student loan repayments begin, putting ever more financial pressure on a large number of Americans. For those who will be able to make their reinstated payments, sacrifice will have to come from somewhere. 

Many student loan holders cite having to put off saving to buy a house to make their payments. In other instances, making payments will mean cutting back in other areas of consumer spending. Think things like restaurants, travel, and entertainment purchases. 

And then there’s the fact that personal savings will take a hit. This is something that rose during the pandemic thanks to payments being suspended. Now, personal savings have settled to a low that hasn’t been seen since around 2009. Among other things, this means that many Americans will not be ready for a recession if one happens, and they will not be prepared for situations like job losses or medical emergencies. 

All of these factors are set to converge at a time when more people are living paycheck to paycheck and inflation is continuing to squeeze more out of them. 

Many economists believe that we’ve avoided the recession that was being predicted but there is still talk of further rate hikes. If they come, we will see these trends not only continue but likely accelerate. 

The effects will spread out to the wider economy, which is why you will want to take the right steps to protect yourself. 

As an investor, you don’t have any control over how the economic environment will develop but you can control how you protect yourself and profit from it.

Ryan Stancil
Editor, Daily Profit Cycle