The following chart was provided by Business Insider’s Clusterstock Chart of the Day, and it suggests that the hopes of a consumer driven recovery are facing an uphill battle. Furthermore, even though American Express (AXP) got a lift today with better than a month ago charge off rates, they were still quite high at 9.9%. Charge offs are accounts that lenders are writing off as uncollectible. Charge-offs generally travel in line with unemployment which continues to increase with few signs of reversing course.
With consumer debt at historically very high levels and savings rates climbing, it is difficult to see how spending will rebound in the next few quarters. The impact of this on GDP could be substantial as consumption has accounted for about seven-tenths of GDP in recent years. With credit card companies and banks left holding the bag with rapidly defaulting consumer credit accounts, we would expect the availability of additional consumer credit to be somewhat more scarce going forward.
The one potential caveat to this analysis is rising inflation. If inflation begins to take hold then the borrower has the advantage and presumably can more easily pay down the nominal debt. If a dollar tomorrow is worth less than a dollar yesterday then debts become more manageable. This is not at all far fetched as the money supply continues to expand, and the national deficit has hit $1T in the first nine months of the fiscal year. No one knows when or if inflation will begin to take hold, but it appears that the interim could be painful with consumers maxed out and the economy in contraction.