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Is the Consumer Doomed? Well…

November 22, 2022
Yesterday, this tweet caught our eye.
Because it matches macro trends we’re watching unfold in the LikeFolio universe…
The narrative isn’t new: consumers are depleting savings accounts in favor of carrying larger amounts of debt. 

Doom and gloom, right? 

Not necessarily. 

This chart is very telling.
The delinquency rate on credit card loans is significantly lower than levels recorded in 2008 and during the pandemic. 

BUT on the far right of this chart, you can see an inflection point emerging... 

The New York Fed reiterated these findings in its November report, stating: 

“The share of debt newly transitioning into delinquency increased for nearly all debt types, following two years of historically low delinquency transitions. Transition rates into early delinquency for credit cards and auto loans have increased by about a half of a percentage point, following similarly sized increases in the second quarter.”
Bottom line: Consumers are certainly showing early signs of stress, but the collective isn’t at a breaking point…yet. 

LikeFolio data is typically extremely forward-looking…meaning, the “can’t make a payment” stress mentions are just beginning to come to fruition. 

So looking ahead, it’s important to identify what consumers are prioritizing when they’re making purchases. 

To understand this on a big-picture scale we analyzed sectors in the LikeFolio universe (broken down below).

What are our main takeaways?

  1. Consumers are still splurging on “fun” indulgences. We highlighted this in a prior MegaTrends report featuring some of the top-growing “Sin Stocks” in our universe. So far, this theory continues to hold true. Consumers are prioritizing experiences: gambling, alcohol, and travel.
  2. Consumers are cutting out low-lying non-essentials. Like skipping that lunch trip to Chipotle and hitting fast food (or packing a lunch instead). And holding off on a new refrigerator when the one they’ve got works just fine.
  3. Consumer taste is tilting toward quality, but shoppers aren’t afraid to trade down for perceived value. High earners continue to splurge on high-end brands. But average consumers are getting savvy, many are trading down to a brand with a high perceived quality but a lower price point. eBay is an excellent example of this type of trade-down behavior. The company benefitted on its last earnings report from its positioning as a price-friendly alternative for cash-strapped consumers with a taste for high quality.

We’ll be tracking consumer shopping behavior very closely this week, especially as consumers tip their hands regarding holiday shopping!

LikeFolio can expect a detailed report featuring major shifts in behavior, and the big winners and losers on our radar when it’s all said and done.

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About LikeFolio

LikeFolio analyzes social media data to accurately predict shifts in consumer behavior. We sell data and insights to professional investors, corporate research teams, and software providers.

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