How’s the Economy? Follow the Credit Cards

by Andrew Zatlin November 10, 2023 10:05 am ET

What do you use credit cards for?

Gas? Groceries? Holiday shopping?

For me, these little pieces of plastic provide insights into our economy…

Including where our next money-making opportunity lies.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

How’s the Economy? Follow the Credit Cards

America loves credit cards. After all…

They’re an easy way to make major purchases. They help cash-strapped families pay for essentials. And some even come with intriguing rewards.

But they can also do something else:

They can help us forecast what’ll happen next in the economy…

And that’s where these little plastic cards really provide a big payoff.

Even More Proof

In my last video, I shared data suggesting that our economy is slowing down.

Today, I’d like to reveal two more data points that not only reinforce this perspective…

But also point to what you can do about it as an investor.

Record Debt Levels

The first data point involves consumer revolving-debt — in other words, credit-card spending.

We look at credit-card spending because we’re a consumer-driven economy. The more consumers spend, the more our economy grows. And these days, the average consumer’s primary spending tool is a credit card.

According to recent data, credit-card debt in America reached nearly $1.3 trillion.

But unlike most analysts, that’s not what I’m paying attention to.

Instead, I’m looking at the momentum of this spending — in other words, the speed at which credit-card debt is rising.

You see, despite total debt continuing to climb, the rate at which people are using credit cards is declining. And that’s what concerns me…

From Accelerating to Coasting

Take a look at this chart:

This chart shows the level of credit-card debt over the past decade or so.

Before the pandemic, debt levels were steady. Then, during COVID, this debt plummeted. Many people lost their jobs and income, so they slowed their credit-card purchases. Others, meanwhile, used stimulus checks to pay down their debts.

But look what happened as we headed into 2022. Credit-card debt skyrocketed to new heights. At the same time, our economy surged.

If our economy was a car, this boost was like going from 60 miles per hour (mph) down the highway to more than 100 mph.

But over the past year or so, credit-card spending has fallen off. The car is now driving along at around 90 mph.

If you’ve ever driven a car, imagine that you’re no longer putting your foot on the accelerator. Rather, you’re simply coasting along.

Sure, you’re still traveling at a high rate of speed. But when you’re coasting, your car will start to slow down almost immediately. And before long, it’ll come to a complete stop.

And that’s exactly what we’re seeing with the economy. Yes, consumers are still spending. But the rate at which they’re spending is slowing.

In fact, more and more consumers are having trouble paying what they owe…

Time to Pay Up

And that’s the second data point I want to share with you:

Credit-card delinquencies are ticking up.

The rate at which people are failing to pay down their debts is spiking. The rate today is higher than it was before the pandemic.

This is a major concern. Eventually, delinquencies will play an impactful role in overall consumer spending. Again, that’s bad news for the economy.

Now, lest you think I’m being a downer — that I’ve woken up on the wrong side of the economic bed — let me remind you that bad news can sometimes be good news.

Let me explain…

Look to Bonds

As our economy slows, the Federal Reserve is more likely to consider interest-rate cuts.

And when that happens, besides a likely boost in the stock market, we’re also going to see bond prices go up. And when bond prices go up, yields come down.

Bonds are an attractive asset class during times of economic pullback or uncertainty. And that’s exactly what we’re facing.

The main factor here is timing. We don’t know exactly when interest rates are going to start getting cut. It could be two months, four months, or even longer.

But no matter how long it takes, now is the opportune time to rebalance your portfolio and start allocating funds into bonds.

If you’re a Moneyball Pro subscriber, I’ll reveal the bond-related investment I’d make today. In the meantime, we’re in it to win it. Zatlin out.