The hivemind is worried about consumer credit

Daily Data: Dated observations about consumer credit are suddenly hot in the journo hivemind and it's hard to understand why

In today’s dispatch:

• the hivemind is worried about consumer credit

• a credit card spending surprise or not so much?

• excess savings (not that again)

• BNPL still coming up roses, despite the fear and loathing

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The hivemind is worried about consumer credit, but why?

The thing about the hive mind is that exists without explicit coordination.

That people in overlapping professional circles, with roughly similar status, and generally aligned interests start thinking and doing and saying the same things at the same time happens all the time. It looks for all the world like some kind of ‘talking points’ memo went out (and sometimes that does happen), but narrative convergence—down to the same idioms, anecdotes, facts and counter-facts—mostly just happens ‘organically.’

The reason that it happens is not only because humans are social and mimetic creatures (which of course they are).

It’s also because the equilibria of overlapping professional circles, etc. is very likely achieved, optimized and maintained precisely through that highly coordinated (but not masterminded) consensus (consensusi?).

In other words, being good at intuiting, crafting and reinforcing these shared narratives is a well-rewarded behavior by the hive, and so that’s what little journo-bees do. They are, in other other words, guided by the same Smithian ‘invisible hand,’ that elsewhere creates an illusion of centralized planning and control so compelling that people think “if only the right people were in charge, it would be better,” without realizing that no one is, in fact, in charge.¹

The hivemind exists and it does not require a conspiracy to make it so.

Anyways, it’s an evergreen observation, and it has no particular salience today other than (at least) two articles by different publications on the rise of credit card debt and/or BNPL.

The general implication is that consumers, whether Gen Z and/or low income are “falling more into debt,” using novel credit products that “regulators can’t see,” and that this is obviously bad and a cause for concern.²

Now, Random Walk has been following growing credit card debt, delinquencies, and BNPL specifically, for a while now.

In fact, part of my interest in BNPL specifically is because it “contains [hidden] multitudes,”—i.e. a black box of credit inclusion and/or predation that can both sustain an unsustainable boom in online consumer spending, and unlock a substantial subset of perfectly healthy consumer behavior that was previously untouchable because unit economics made it worth no one’s while, until technology came along and changed everything.

Point is Random Walk is eyes wide open about the growth of credit card debt, and BNPL specifically, which is why I can say with a high degree of confidence that both articles are poorly conceived scaremongering.

It’s not that bad stuff can’t or won’t happen, it’s that both articles ignore that (a) there is a good version of the same story; and (b) the evidence clearly favors that version, for now.

As I said, poorly conceived scaremongering.

OK, so bad journalism is nothing new. There is also good journalism. No one is perfect.

What is amusing and/or puzzling to Random Walk about this specific case of bad journalism is . . . why now?

Credit card data shows a little surprise . . . but it’s not running away

The data around credit card debt and BNPL is mostly good, and if not that, then a little confusing.

So why kick up dirt now? What does the hivemind know?

On the confusing front, the NY Fed released its monthly consumer credit data, and it contained a little surprise.

It looks like consumers just stopped adding revolving credit (i.e. credit card debt):

YoY change in revolving credit was itty-bitty

Source: NY Fed.

After months of steadily adding substantial amounts of credit card debt, everyone appears to have . . . stopped.

There’s been plenty of evidence of consumer caution and tradedowns, but most of the evidence (and narrative) around spending overall seems pretty OK. It’s relatively lagging data too, so while I personally find it surprising, I probably shouldn’t.

It’s not just the Fed’s data, either.

Bank of America’s panel also shows a moderate seasonal downturn of credit card spending in March (followed by a slight pick up in April):

Credit card spending went negative in March, and slightly positive again in April

BofA

March had a seasonally adjusted decline of -0.7%.

“Buried in credit card debt” indeed.³

Excess Savings (not that again)?

The slight drop could have something to do with an earlier Easter this year, but either way, the only thing remarkable (to me) is that spending was so unimpressive (and no one really noticed).

I’ve been fooled by the “excess savings” metric too many times to trust it, so consider me just the messenger this time around: