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Pay close attention to important economic and consumer data points
Thursday 30 Mar 2017 Author: Daniel Coatsworth

A rise in personal debt and a fall in mortgage approvals could point towards more difficult times ahead in the UK. Investment bank Liberum says get out of retail and housebuilding stocks now.

The BBA says consumer credit is expanding at an annual rate of 6.6% with growth being fuelled by credit card spending. I’m worried that fairly robust UK retail sales figures are a result of consumers spending with their cards, not hard-earned cash.

There are limits to how far consumers can live beyond their means with spending rising faster than disposable incomes.

Back to normal?

Some market commentators believe the slowdown in mortgage approvals is merely the market reverting back to normal levels after a bumper period in the preceding months. I wouldn’t be surprised if there is also an element of lenders rejecting people because of their rising level of personal debt.

The Council of Mortgage Lenders says lending is being driven by first-time buyers and people remortgaging – activity levels are actually weak among homeowners moving to a different property and in buy-to-let.

Furthermore, I note there has been a decline in the amount of people searching online for the term ‘mortgage’ since mid-January 2017, according to Google Trends. This seems negative for property-related stocks.

Many of the housebuilders have seen share price rises by circa 15% so far this year, helped by robust trading statements and takeover activity in the sector. Liberum says now is the time to lock in any profit on those stocks.

The investment bank forecasts an ongoing decline in household disposable income in light of rising inflation and disappointing nominal wage growth.

Warning signs

You are certainly seeing a few cracks in the market with regards to consumer spending. For example, restaurant business Tasty (TAST:AIM) downgraded its profit guidance earlier this week and said it would halve the number of new openings in 2017, citing ‘challenging’ market conditions since the start of the year.

It’s a worrying situation, but can you really deduce what will happen in the future from only a few data points? You can certainly make some assumptions and that’s exactly how the stock market works.

Investors price in what they believe will happen in the future. That’s why it can pay to keep a close on the key data points every month and signals from listed companies as they can help formulate the potential direction of certain parts of the
stock market.



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