Executive Summary
- Revolving credit (Credit Card Balances) seldomly fall during economic growth cycles.
- We saw a 2.05% quarterly decline which is the sharpest quarterly decline in consumer credit card balances going back to the pandemic shock and 2009 which saw a -2.75% drop during the peak of the financial crisis.
- While top-line consumer credit growth appears to have stabilized, the current range-bound trajectory suggests a pivot toward precautionary deleveraging. This indicates that the American consumer is prioritizing balance sheet repair in response to perceived employment fragility, rather than a fundamental shift in fiscal discipline.
This data series is a valuable series to help inform one's understanding of aggregated spending trends and consumer sentiment. The major caveat here is that one does not look in the rear view mirror while driving their car. The series has an approximate 3 month lag time so it shows us where we've been not where we are headed.
Consumer Uncertainty Builds and Sustains
I've plotted a composite of consumer sentiment survey data along with revolving credit balances. The survey data is a better forward looking read versus the aggregate spending data. December's sentiment read bounced off multi decade lows, but remains sub 60 which was the low prints during the GFC and 2011 .
Similar to the weakness we saw in 2011 where a technical recession wasn't issued. We are seeing the same pessimism from the consumer. Not only in sentiment this time, instead it is translating into changes in spending habits. The so called "K" shaped economy is predicated on the further gains from the stock market which now leads the economy as consumption is driven in large part by the highest income cohorts. The dichotomy in the economy is plain to see.
Chaos Theory Outlook
Current market sentiment suggests that a combination of Federal Reserve rate cuts and substantial tax refunds will bolster consumer spending through Q1 2026—a narrative already being reflected in asset prices. While history shows that tax relief can stimulate spending or cushion a downturn, it rarely prevents a recession entirely; the 2001 Economic Growth and Tax Relief Reconciliation Act serves as a prime example. In my view, the real driver remains the AI capex cycle. The resulting wealth effect from equity performance will likely sustain our 'K-shaped' economy until this investment cycle reaches its peak.