Consumer confidence may well be in the dumps, but it is more important to watch consumer behavior when judging the economy. In June, consumers added $15.5 billion to their credit lines (revolving plus non-revolving). According to the Federal Reserve Bank of Atlanta, that was the largest monthly increase since August 2007 (see chart). Non-revolving credit (e.g., auto loans) increased by $10.3 billion while revolving credit (e.g., credit card balances) increased by $5.2 billion. This data is, of course, before the contentious debt ceiling debate and all of the alarmist headlines about defaulting so we may still see some pull back in July’s data, but the trend is up for the economy based on this data.
Additionally, we watch the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index) to get a read on the real-time performance of the U.S. economy. Figures above zero indicate economic measures are coming in above average while figures below zero, you guessed it, indicate economic results are coming in below average as reported. If we look at the ADS Index (see chart below), one can see the slowdown from Q4 2010. Growth in the economy appears to have bottomed out about midway through Q2 of 2011 and picked up since that time.
While the economy seems to be frustratingly stuck in first gear (and at more risk from some economic shock), we don’t anticipate a new recession.