Fun With Charts!
Consumer confidence and finances are two critical components of the economy.
Notice how consumer sentiment and the stock market are linked on the chart below1. When consumer confidence peaks, the subsequent 12-month return for the stock market tends to be lower. Conversely, when consumer sentiment bottoms, notice the returns for the S&P 500 are higher. (Unfortunately, peaks and troughs are only known after the fact. We don’t know if consumer sentiment is currently low and heading lower, or if this represents a trough, indicating that sentiment and markets are about to move higher.
If consumers are doing well financially, they pay their bills on time. When our financial situation gets more precarious, things can change.
The chart below2 shows what comprises the “consumer balance sheet,” which is effectively a compilation of all our individual balance sheets. As can be seen by the graphs on the left side, consumers have far more assets than liabilities. Cash flow, however, is a different issue.
Household debt service ratio (chart): shows debt payments as a percentage of disposable income. The graph illustrates the percentage of our income allocated to paying ongoing debts. Suffice it to say that as we spend more of our income on debt, we have less money to spend on buying goods and services.
Flows into early delinquencies (chart): an indicator of how much consumers are likely to spend in the coming months. (If consumers can’t pay their debts, they’re unlikely to increase spending on goods and services.) Note how the graphs are rising, which depicts higher delinquency rates. Look at the numbers in the small box: delinquency rates for auto loans (8.1%), credit cards (8.0%), student loans (0.9% as of 3/31/25 due to loan deferment programs, but now being reported as close to 25%), and mortgages (3.6%).
! “Consumer confidence and the stock market,” Slide 20, Guide to Retirement, J.P. Morgan. March 31, 2025.
2 “Consumer finances,” Slide 19, Guide to Retirement, J.P. Morgan. March 31, 2025.
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