FAST FIVE: Goldman Economist Warns US Consumers Maxing Out Credit Cards Will Lead To Late 2022 Spending Collapse
who admitted that US consumers, drowning in inflation, are “already relying on leverage to some extent to fund their spending.” We are talking, of course, about Goldman chief economist Jan Hatzius, who no longer sees any “pent-up savings” offsetting either the fiscal or the hyperinflationary drag (unlike what he said in October) and instead speaking on Bloomberg TV, said that “borrowing is going to be a short-term driver of spending, and I think has been to some degree already.” Did the explosive growth in credit card borrowing tip him off.
Echoing verbatim what we have said since late 2021, Hatzius also said that not only is consumer credit on the rise, but there has been a pickup in mortgage-equity withdrawal where homeowners take out a loan against the appreciated equity in their property, and concluded that both dynamics are supporting spending.
Meantime, consumers' reliance on leverage “supports spending in the short term but ultimately is not going to be a sustainable source of big increases in spending,” Hatzius said.
And yes, for those wondering, Goldman did actually publish a note a few days ago (available to professional subs), explaining why the surge in consumer credit is quite concerning.
concluding that “once credit levels have normalized and households can no longer grow credit at a higher than normal pace, we see potential for binding credit constraints to subtract up to 2% from the level of PCE.” In conclusion, Hatzius said that the timing of a downturn in housing will determine the turning point, he said.