Chart of the Week

July 19, 2017

Craig Holke, Investment Strategy Analyst

Consumer Spending Remains Healthy

Sources: Federal Reserve, Wells Fargo Investment Institute, 7/5/17. Notes: Debt service is the quarterly total required mortgage and other credit household debt payments. Mortgage service is quarterly mortgage payments. Disposable personal income is measured as income (wages, interest, dividends, etc.) plus transfer payments (Social Security, Medicaid, etc.) minus taxes. This chart was excerpted from the Global Perspectives report dated July 11, 2017.

Household Debt Payments Have Fallen Along with Mortgage’s Share

“Mortgage debt levels are rising in the U.S., and that raises questions of whether increasing household debt will trigger a consumer-spending slowdown. The chart shows a declining portion of after-tax income is consumed by overall consumer debt and mortgage payments today. Debt payments have been reduced through lower interest rates for mortgage and other debt. This reduction in debt payments leaves more money in consumers’ pockets to either save or to drive economic growth through increased spending.”

What it May Mean for Investors

“While households are accumulating more mortgage debt, consumer disposable income and spending both remain healthy. We believe that these trends will support the U.S. economy, and fuel higher corporate earnings and equity prices.”

Risk Factors

Forecasts are not guaranteed and are subject to change.

All investing involves risks including the possible loss of principal. Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities.

Investments in fixed-income securities are subject to market, interest rate, credit/default, liquidity, inflation and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.

An index is unmanaged and not available for direct investment.

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