Household Balance Sheets Still Strong Despite Consumer Spending Tremors

1. While the U.S. consumer remains resilient, and spending continues at fairly robust levels, there are underlying signs of consumers pulling back. 
   
   
2. In the third quarter, some retailers reported customers trading down to private label brands or smaller pack sizes. 
   
   
3. Banks and other companies with finance arms noted credit trends are beginning to “normalize” from ultra-low levels aided by pandemic-related stimulus.   
   
   
4. Meanwhile, consumer balance sheets continue to be relatively healthy, and, as this chart shows, overall debt service payments, for the time being, remain historically low.
   
   
5. We believe higher inflation and interest rates may persist, but do not see a recession in the near term.
   
   
6. Following years of lower interest rates helping to drive ever-higher growth-stock valuations, we think value investing is ripe for a period of outperformance.   

Chart source:
Source: Board of Governors of the Federal Reserve System (US), Household Debt Service Payments as a Percent of Disposable Personal Income [TDSP], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TDSP, Sept. 22, 2023.