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Readers Chime in on Possible Impact of Consumer Debt on Economy, Stock Market

According to The World Bank, global growth is projected to rise to 2.7% in 2017 after expanding by a post-financial-crisis-low 2.3% in 2016. The organization expects growth in emerging market and developing economies (EMDEs) to pick up in 2017. However, it also sees downside risks to global growth: increasing policy uncertainty in major advanced economies and some EMDEs, financial market disruptions, and weakening potential growth. However, it believes that fiscal stimulus in key major economies—in particular, the United States—could lead to stronger-than-expected activity in the near term and thus represent a substantial upside risk to the outlook.

AAII Weekly Survey Question

Wanting to know that individual investors see as the downside risks to global economic growth, last week’s reader question asked the following:

What do you believe is the biggest obstacle to global economic growth?

Here are the results:

Out of the 2,030 readers who responded as of Monday morning, nearly one-third believe that public and private debt levels are the biggest obstacle to global economic growth.

Coming in at second place, with 21% of the votes, geopolitical tensions are viewed at the biggest obstacle to global economic growth.

In the current political climate, it is perhaps not surprising that 18% of respondents believe that the rise in populist movements in many nations is the biggest obstacle to global economic growth.

Possible trade wars are seen as the biggest growth obstacle for the global economy by 16% of readers, while 12% believe that the lack of global economic coordination is the biggest hurdle.

Interestingly, though, only 2% if respondents believe that rising interest rates with hinder global economic growth.

Weekly Special Question

While I didn’t rig things to turn out this way, it is ironic that the biggest perceived obstacle to global economic growth among our readers is the level of public and private debt. That is because last week’s special question was related to consumer debt in the U.S. Specifically:

According to the Federal Reserve Bank of New York, total U.S. household debt climbed to $12.6 trillion at the end of 2016, nearing levels not seen since 2008. What do you think the implications of this are for the U.S. economy and stock market?

In all, 292 responded and, probably not surprising, most felt that there is too much of a “good thing.” Specifically, 225 (77%) of the respondents feel that the current level of household debt is a negative, while only 5% believe that high consumer debt is a sign of confidence in the economy and, thus, a good sign. The remaining 18% aren’t sure whether consumer debt plays a role in the overall health or the U.S. economy or stock market.

Here is a sampling of the responses:

  • “Consumer demand will remain low and hold back economic growth thus minimizing increased stock values.”
  • “Rising interest rates will be a strong headwind to stock market and economic growth as more government and household resources are diverted to service higher interest on debt.”
  • “We are broke, but do not admit it.”
  • “Debt will be the downfall of our nation and our households. It must be used wisely and only for critical needs and that we have the ability to payback. Debt can be a blessing and a curse.”
  • “By itself, the debt level will probably have [a] negligible effect, but in the event of a downturn, it will act as an amplifier, thus making the system more fragile and brittle.”
  • “The level should be put in relative terms and adjusted for economic growth since 2008. For instance, as a percent of GNP, is the debt [level] less?”
  • “Confidence is increasing in small and large business surveys; if you consider population growth and inflation, the U.S. is just getting ready for economic lift-off!”
  • “I think a relaxing of regulations and a better tax structure would allow even a debt-strapped economy to flourish.”
  • “Increased household debt is a positive indicator. Americans are feeling more comfortable with their financial situation. It is bullish for both the U.S. economy and stock market.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at http://www.aaii.com/memberquestion.

 

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