One of the New Year’s predictions we made last week has already come true.
We predicted that tax reform would result in higher consumer spending, not only because consumers would have more money to spend, but because wages would likely rise.
It turns out, though, that consumers starting spending in November in anticipation of tax reform and, as a result, set new records for consumer debt.
As Zero Hedge reported, “consumer credit rose by $11.2 billion in revolving credit, or credit card debt, which pushed it to a record $1.023 trillion, the highest credit card amount outstanding on record. This was also the second highest monthly increase in credit card debt on record. Meanwhile, non-revolving credit – or auto and student loans – rose by $16.8 trillion to $2.805 trillion.”
With the increase in spending, the personal savings rate dropped to 2.9%, the lowest it’s been since November 2007.
We’ve frequently warned about the dangers of excessive debt. Conversely, spending also stimulates economic growth. It is also a sign of confidence in the economy and, as we noted, consumer confidence recently hit its highest level in 17 years.
Stocks Up, Too
Our prediction that stock prices will continue to rise in 2018 is also looking good, as least to date. As of Monday, Jan. 8, the S&P 500 was already up 2.5%, continuing its impressive performance for 2017, during which it gained 19.42%.
As Ryan Detrick noted, “since 1950, when the first five days are up over 2%, the S&P 500 is higher for the year 15 out of 15 times with an average return of +18.6%.”