May 18, 2023 3 min read

Consumers continue to face many challenges in today’s economy. Inflation has slowed some from earlier in the year, but it is still almost three times as high as the Federal Reserve Board wants to see. The Fed has raised interest rates significantly over the last year. While its actions have made a dent in inflation, its has a difficult balancing act deciding how far and how fast to go to keep from pushing us into a serious recession.

Higher interest rates are intended to slow the economy by raising the cost to buy things. There are often other economic factors that also influence consumer behavior. It was recently announced that the average age of autos on U.S. streets is now 12.5 years. This is one of the oldest time frames ever. Besides higher interest cost, inflation is making the cost of new autos jump, and the computer chip shortage has led to supply issues.

Home Depot announced its biggest revenue miss in 20 years. Sales of major appliances and large remodeling projects are obviously hurt by higher interest; lower price for lumber may have contributed to the revenue miss. Lumber prices have tumbled 80% since hitting their high in May 2021. During the pandemic, many people made home improvements when it was impossible to travel or go out for entertainment. Now that the pandemic is over, many people are switching plans to see the world.

There is a lot of concern in the financial world about the upcoming debt ceiling discussions. Treasury Secretary Janet Yellen is estimating that the problem could be only a few weeks away, on June 1. The president does not want to call this a negotiation because he thinks any discussion about spending cuts should be held separately. House Speaker Kevin McCarthy does not agree. He believes there must be quid pro quo. What is not in question is the huge negative outcome of such an event. Social Security checks could be delayed, millions of jobs could be lost, added volatility to the stock market and the U.S. economic status reduced. Hopefully a solution will be found that will probably require some movement by both sides.

Consumer debt is a growing financial concern. During the pandemic, debt decreased because there were limited things to buy and places to go. All of the stimulus money made consumers flush with cash. Those reserves are now gone for many and borrowing is increasing. Now the pent-up demand is leading to more travel and other purchases. Unfortunately, many people are paying with plastic. The Federal Reserve reports that consumer debt hit a record high in February at $4.82 trillion. This is extra concerning when average credit card interest rates have risen an additional 4% since the Fe dstarted raising overall interest rate. This total interest rate is sometimes 20%.

As we have discussed a number of times, it is important to try to pay off credit cards every month and not just make the minimum payment. I realize that inflation makes this tougher to do, but imagine the issues if you were to lose your job. Make a budget and have a plan to deal with all possible financial issues. It will make life easier for your family.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP. who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.