With the recent news and headlines surrounding the current state of the market, we are taking a deeper dive into key factors that we believe investors should keep an eye on, such as:
• Credit card debt soars in the U.S.
• October jobs report shows strong performance
• The challenge with converting office spaces to housing
Credit Card Debt Soars, and May Go Higher for Holiday Shopping – The U.S. consumer has been powering economic growth in 2023, driven in large part by a strong labor market and rising wages. But they’ve also been buying more on credit. According to the Federal Reserve Bank of New York’s latest household credit and debt report, Americans’ total credit card balance eclipsed $1.08 trillion in Q3, which was up $154 billion from last year. That marked the biggest year-over-year increase on record, which should not come as a surprise – Americans are earning more, and goods and services are more expensive.1
Consumer credit card balances at large banks have risen sharply since 2021
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Many media outlets and headlines frame Americans’ credit card spending as out of control and risky to the economy, and cite the $1+ trillion figure as alarming. It has also been reported that the delinquency rate on credit cards reached its highest level since 2011, with the biggest increase coming from borrowers aged 30 to 39. But zooming out a bit more, we can see that delinquency rates (chart below) are still well below historical averages. In our view, there’s no need to sound the alarm bell yet.
Delinquency Rate on Credit Cards
October Jobs Report Shows Strong, But Cooling, Labor Market – The U.S. Department of Labor released the October jobs report late last week, and the results showed a stable, but slightly cooling labor market. As we’ll explain below, that’s a good thing. In October, employers added 150,000 new jobs, nearly all of the job gains came from just three sectors—healthcare, government, leisure & hospitality—with the rest of the economy effectively seeing no job growth for the month. We’d also note that monthly payroll gains have slowed to 204,000 over the past three months, and the unemployment rate has been slowly but consistently moving higher. It was 3.4% in April, rose to 3.8% in September, and registered in October at 3.9%. Wages have also continued to tick higher, with average hourly earnings rising 0.2% from September and 4.1% year-over-year. With year-over-year inflation coming in at 3.4% year-over-year in September, it means that U.S. consumers are seeing positive real wage growth – a good sign. We mentioned earlier that the slightly cooling labor market can be viewed as a good thing. The reason is the Federal Reserve. With higher long-duration interest rates and a cooling labor market, the Fed is increasingly likely to decide monetary policy and financial conditions are sufficiently tight to keep inflation at bay, which implies no further rate hikes in 2023.5
Can Empty Office Buildings Be Converted to New Housing? Many readers have seen the headlines about empty office buildings in downtowns around the U.S. With the surge in hybrid and remote work in the aftermath of the pandemic, many companies have decided not to renew leases or simply do not have enough local employees to make having an office worth the cost. That has led to increased calls to convert office buildings into new apartment/housing units, in an effort to solve another one of America’s issues: not enough housing stock. The problem is that converting offices to apartments is extremely difficult. Last year, developers were able to create 3,575 apartment units from office space, which is less than 1% of all apartments built in 2022. The challenges in converting offices to apartments are many: current financing is expensive with high-interest rates, apartment rents are falling which makes new investors shy away, and many conversions require major interior demolition and extensive plumbing to make floor plans work.6
Strategies for Spending Money in Retirement – You’ve worked hard and planned carefully to build your retirement nest egg – where do you begin when it comes to spending it?
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• Spending 101: Understanding Tax Buckets
• The 4% Rule
• Dynamic Spending with the 5% Rule
• And more…
If you have $500,000 or more to invest and are ready to learn more, click on the link below to get your copy today!
Disclosure