Saturday, November 15, 2008
Credit Drops ==> Retail Sales Drop ==> GDP Drops
As I have noted in previous posts, consumer borrowing is grinding to a halt. Whether it is forced or voluntary, the decline in leverage will have a profound impact on retail sales going forward. To quickly review, outstanding household mortgage debt grew from $4.8 trillion in 2000 to $10.5 trillion in 2007. However, it has expanded by only $200 billion this year (my forecast based on Federal Reserve 3rd quarter data). Outstanding consumer credit grew from $1.7 trillion in 2000 to $2.6 trillion in 2007. My guess is that it will expand to $2.7 trillion by year end since credit providers did not aggressively cut access until the third quarter.
Last year's $4.5 trillion represented 32% of GDP. The consumer is a huge part of our economy. Be prepared for an extended economic downturn.
Posted by MK at 2:03 PM