The Forgotten Man

October 19, 2022

While there has been no shortage of recent headlines dissecting the sorry state of the economy and markets, the average U.S. consumer is occasionally overlooked in that narrative. Year-to-date, the Federal Reserve has increased the federal funds rate by 300bps. As the Fed raises rates, the prime rate, or rate set by commercial banks, increases in tandem. For the average Joe, this means any interest rates that are not fixed increase as well, including credit card rates and adjustable mortgage rates. Consumers in the market for a home or vehicle also face higher fixed rates on new loans. This year, rates have reached highs not seen in years: mortgage rates — currently at 6.9% for a 30-year fixed loan — have not been this high since 2002, auto rates at 5.5% are the highest in more than 10 years, and credit card rates — at 16.3% — have never been this high in a data series dating back to 1994.

In an environment where the average consumer is already paying higher prices for fuel, food, and other staples due to soaring inflation, increasing credit card and auto loan rates add to the burden. While consumer spending has so far been fairly resilient to rising prices, the underlying dynamics are not sustainable. According to a Forbes survey from June 2022,¹ 67% of Americans have dipped into their savings for spending, with 31% either depleting their savings or using a significant portion of it. With all eyes on U.S. GDP, it is important to remember that consumer spending makes up 70% of the economy, and the health of the average Joe is what will determine our path from here.

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¹Forbes Advisor OnePoll survey, June 2022

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.