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David Rosenberg: 7 Warnings Cast Doubt on Consumer Financial Health

David Rosenberg: 7 Warnings Cast Doubt on Consumer Financial Health
(Stock Photo Secrets)

By    |   Monday, 25 July 2016 01:18 PM

Stocks are hitting record highs as retail sales data that show consumers are spending money and supporting economic growth are making investors more optimistic.

But there are worrisome signs about the financial health of U.S. shoppers, says David Rosenberg, chief economist and strategist at Gluskin Sheff. He also marvels at this summer’s market resilience in the face of the U.K. exit from the European Union, terrorist attacks, an attempted military coup in Turkey and press reports that the Federal Reserve is pondering another rate hike in September.

“There was a time late last year and early last year when any or all of these factors would have sent the stock market reeling,” he says in a July 25 report obtained by Newsmax Finance. “Yet here we are still flirting near the high for the S&P 500.”

The stock benchmark on Friday rose about 10 points to a record close of 2,175.03, up about 6 percent year to date.

Rosenberg sees several warning signs that may indicate consumer spending could stall.

Warning Signs for Consumer Spending
  1. Major Banks Raising Loan-Loss Reserves. Wells Fargo added $150 million to its reserves for souring loans, Capital One boosted its reserves for credit cards by $290 million and JPMorgan Chase set aside $250 million in card reserves.
  2. Rising Default Rates. Default rates on general purpose credit cards rose to 3.1 percent in June from 2.9 percent a year ago – the first increase after five years of decline.
  3. Auto Loan Deliquency. Car loan delinquencies have risen to 0.91 percent from 0.85 percent a year earlier.
  4. Missed Payments. A New York Fed survey says the portion households that likely will miss a debt payment in the third quarter has risen to 13.3 percent from 11.5 percent in March, the highest in two years.
  5. Credit Standards. Banks that reported earnings this month said they are tightening credit scoring for borrowers with lower FICO scores, or less than 700 points.
  6. Consumer Confidence  Waning. The University of Michigan consumer confidence index fell in July to a three-month low and the second-weakest since September.
  7. Companies Hoarding Cash. Rosenberg cites a Financial Times story that says corporations are holding more cash than at any time since 2011. That's generally a sign of uncertainty and stalling business investment.
Rosenberg says investors should be cautious about buying stocks, especially after the ramp to record highs after a brief post-Brexit decline.

"Chasing market performance at the current price-to-earnings multiple, even with a tip of the hat to ultra-low discount rates, is akin to chasing dimes and nickels in front of a steamroller," he says.

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There are worrisome signs about the financial health of U.S. consumers, says David Rosenberg, chief economist and strategist at Gluskin Sheff.
consumer, spending, economy, Rosenberg
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2016-18-25
Monday, 25 July 2016 01:18 PM
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