Don’t look now, but consumer credit card debt just hit an all-time high.  I understand if your initial reaction is to head for the hills, but there’s a stark difference between April 2008 and June 2017.  Don’t get me wrong; I’m not trying to be sanguine or even whistle through a graveyard, but this isn’t about irrational exuberance –it’s about increased confidence backed by improving fundamentals.

The fact is the American public is still more cautious now than they’ve ever been for more than a decade and have more disposable income. The June Consumer Credit data from the Federal Reserve came in less than expected, but enough to nudge the overall number to a new record of $3,855,816,000,000.

• Revolving Debt: +4.1 billion to $1,021,693,000,000
• Non-Revolving Debt: +8.3 billion to $2,834,122,000,000
• Auto Loan Debt: $1,0217 Trillion
• Student Loan Debt: $1,450,500 Trillion

Turning Point

The question is: are happy days here again, or is history playing out in a way that suggests the market and economy are on the precipice of a collapse?

Obviously, when adjusted for inflation, the level of debt should rise more to give pause.  Moreover, outside of student debt, the pace of delinquencies is well below the level going into the Great Recession. The fact is that even with punk wages, folks have more money to spend. However, many have exercised the kind of caution that calls to mind that the restricted spending years after the Great Depression should have been a distant memory. 

On that note, I’m watching retail and restaurants this week. I saw compelling action yesterday, along with others in the consumer space:

Staples:

• (TSN) Tyson Foods (earnings)
• (EL) Estee Lauder Companies
• (COTY) Coty Inc.

Discretionary:

• (BBY) Best Buy
• (DG) Dollar General
• (KSS) Kohl’s
• (DLTR) Dollar Tree
• (SIG) Signet Jewelers Ltd.
• (PVH) The Phillips-Van Heusen Corp.

Today, the earnings parade picks up.

Today’s Session

Mostly smaller names are reporting, which means there are no major coattails for the board market.  There are narratives emerging that matter more than knee-jerk reactions.   I wrote yesterday this week would be all about brick and mortar retailers, and they have gotten off to a strong start.

• Michael Kors is surging on earnings results
• Ralph Lauren is surging on earnings results

As I watch the tape this morning, gains in brick and mortar and other beaten down stocks are holding, but several tech nams that popped are already giving back gains before the open.  I still think rotation is in effect.

Small Business Optimism

The NFIB Small Business Optimism Index snapped a four month sequential decline to get back to the level it reached after the election of President Trump.  The good news is these number could get a lot better.  The bad news is certain problems can’t be fixed overnight.  Seven of the 10 components were higher, two declined and one was inchanged.

The biggest news is 19% are ready to create new jobs, the highest level since December 1999.

• Job Openings +5 to 35%
• Sales Higher +5 to 22%
• Plan to Hire +4 to 19%
• Good Time to Expand +2 to 23%
• See Economy Improving +4 to 37%

Skills Gap & Labor Shortage

We’ve heard for a while about the lack of skilled workers and labor shortages, but now these issues have become acute problems threatening our recovery.

• 35% owners say openings could not be filled – highest level since November 2001
• 60% hiring, but 87% of those say there were few to no qualified applicants

The overall top priority for small businesses is taxes, but labor shortage has zoomed to number two and for construction (28%) and manufacturing (21%) it’s the number one priority.

Comments

Apparently little thought is given to the drag on current economic growth caused by debt representing past consumption, including credit card and student debt plus the outrageous interest rates charged by the banks for credit cards. That much drag on an airplane would prevent it from ever lifting off or cause it to fall out of the sky. The analogy is apropos. The more debt grows -- including national debt -- the closer we are to the next big crash and bailout. Dennis Howard mbaforlife@gmail.com on 8/8/2017 10:40:05 AM

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