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Economists from the National Bank of Canada’s Financial Markets department are out with a note highlighting that recent growth in consumption spending could be highlighting underpinning economic concerns rather than showcasing resilience in the US economy.
… with the economy growing by no less than 4.9% annualized in the third quarter, boosted by a significant increase in household spending.
Our doubts stemmed in large part from the fact that rising household spending in Q3 had not been accompanied by a corollary increase in disposable income but was rather the result of a significant drop in the savings rate.
The percentage of outstanding credit card and auto loans transitioning into serious delinquency (90+days) indeed rose to a 12- and 13-year high, respectively, in Q3. In the case of credit cards, the increase in delinquency rates from one quarter to the next was even the largest recorded to date.
We continue to expect a marked slowdown in consumption – and hence GDP growth – in the fourth quarter.
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