In the February Control, household outlays are expected to contribute more to real GDP growth than all other major spending catagories combined. This will only be possible if consumers continue to be willing and able to carry current levels of debt relative to income. In the past, studies of indebtedness were reassuring because they showed that most debt was in households able to afford payments. Recently, though, DRI reports an increasing proportion of debt concentrated in lower income households. Aggressive credit card marketing may be one reason for this.
News articles indicate lenders are now tightening credit standards.
No one knows how much impact this will have on total spending, but a sharp cutback in bank credit card activity is part of DRI's February hard landing scenario for 1997 which is given a 10 percent probability. Investment One year ago, it looked like excessive inventories could lead to a decline in factory orders and possibly a recession. Fortunately, the GM strike and a springtime spurt in consumer spending cleared the shelves. Since then, inventories have stayed lean because firms have planned more carefully and Christmas sales were good enough to clear out stocks. DRI does not expect another inventory overhang to develop in the forseeable future, eliminating a potential source of instability in the economy.