Tag Archives: Credit Card Debt

The State Of American Debt Slaves

It was one gigantic party. But wait…

Total consumer credit rose 5.4% in the fourth quarter, year over year, to a record $3.84 trillion not seasonally adjusted, according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. December had been somewhat of a disappointment for those that want consumers to drown in debt, but the prior months, starting in Q4 2016, had seen blistering surges of consumer debt.

Think what you will of the election – consumers celebrated it or bemoaned it the American way: by piling on debt.

The chart below shows the progression of consumer debt since 2006 (not seasonally adjusted). Note the slight dip after the Financial Crisis, as consumers deleveraged – with much of the deleveraging being accomplished by defaulting on those debts. But it didn’t last long. And consumer debt has surged since. It’s now 45% higher than it had been in Q4 2008. Food for thought: Over the period, the consumer price index increased 17.5%:

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-total-2017-Q4.png

Credit card debt and other revolving credit in Q4 rose 6% year-over-year to $1.027 trillion, a blistering pace, but it was down from the 9.2% surge in Q3, the nearly 10% surge in Q2, and the dizzying 12% surge in Q1. So the growth of credit card debt in Q4 was somewhat of a disappointment for those wanting to see consumers drown in expensive debt.

The chart below shows the leap of the past four quarters over prior years. This pushed credit card debt in Q3 and Q4 finally over the prior record set in Q4 2008 ($1.004 trillion), before it came tumbling down via said “deleveraging.”

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-cards-2017-Q4.png

These are not seasonally adjusted numbers, and you can see the seasonal surges in credit card debt every Q4 during shopping season (as marked), and the drop afterwards in Q1. But then came 2017. In Q1 2017, credit card debt skyrocketed to an even higher level than Q4, when it should have normally plunged – a phenomenon I have not seen before.

This shows what kind of credit-card party 2017 and Q4 2016 was. Over the four quarter period, Americans added $58 billion to their credit card debt. Over the five-quarter period, they added $109 billion, or 12%! Celebration or retail therapy.

Auto loans rose 3.8% in Q4 year-over-year to $1.114 trillion. It was one of the puniest increases since the auto crisis had ended in 2011. Since then, the year-over-year increases were mostly in the 6% to 9% range. These are loans and leases for new and used vehicles. So the weakness in new-vehicle sales volume in 2017 was covered up by price increases in both new and used vehicles in the second half and strong used-vehicle sales:

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-auto-2017-Q4.png

The red line in the chart above indicates the old unadjusted data. In September 2017, the Federal Reserve announced a big adjustment of consumer credit data going back through Q4 2015, impacting auto loans, credit card debt, and total consumer credit. This adjustment was based on survey data collected every five years. So routine. But for Q4 2015, the adjustment knocked auto loan balances down by $38 billion.

Hence that misleading dip in auto loans in Q4 2015 in the chart above. This was at the peak of the auto-buying frenzy, and actual auto-loan balances certainly rose.

Student loans surged 5.6% in Q4 year-over-year. This seems like a shocking increase, but the year-over-year increases in Q3 and Q4 were the only such increases below 6% in this data series. Between 2007 – as far back as year-over-year comparisons are possible in this data series – and Q3 2012, the year-over-year increases ranged from 11% to 15%:

https://wolfstreet.com/wp-content/uploads/2018/02/US-consumer-credit-student-loans.png

And there was no dip in student-loan balances during the Financial Crisis; in fact, those were the years with the steepest growth rates. From Q1 2008 to Q4 2017, student loan balances soared 141%, from $619.3 billion to $1.49 trillion, multiplying by 2.4 times over those ten years. More food for thought: Over the same period, the consumer price index rose 17.5%.

The problem with debt is that it doesn’t just go away on its own. If one side cannot pay, the other side takes a loss on their asset. Some auto loans and credit card debts remain on the balance sheet of lenders, while others have been securitized and are spread around among investors. But most student loans are guaranteed by the taxpayer or directly funded by the government.

Over the years, student loans have fattened entire industries: Investors in private colleges, the student housing industry (an asset class within commercial real estate), Apple and other companies supplying students with whatever it takes, the textbook industry…. They’re all feeding at the big trough held up by young people and guaranteed by the taxpayer. Food for thought, so to speak.

Source: By Wolf Richter | Wolf Street

 

Advertisements

The Fed Issues A Warning As Household Debt Hits New All Time High

After we first reported last week that US credit card debt hit a new all time high with both student and auto loans rising to fresh records with every new report…

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/07/20/credit%20card%20credit%20jul.jpg

… it won’t come as a surprise that according to the just released latest quarterly household debt and credit report by the NY Fed, Americans’ debt rose to a new record high in the second quarter on the back of an increase in every form of debt: from mortgage, to auto, student and credit card debt. Aggregate household debt increased for the 12th consecutive quarter, and are now $164 billion higher than the previous peak of $12.68 trillion set in Q3, 2008. As of June 30, 2017, total household indebtedness was $12.84 trillion, or 69% of US GDP: a $114 billion (0.9%) increase from the first quarter of 2017 and up $552 billion from a year ago. Overall household debt is now 15.1% above the Q2 2013 trough.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/08/12/total%20debt%20Q2.jpg

Mortgage balances, the largest component of household debt, increased again during the first quarter to $8.69 trillion, an increase of $64 billion from the first quarter of 2017. Balances on home equity lines of credit (HELOC) were roughly flat, and now stand at $452 billion. Non-housing balances were up in the second quarter. Auto loans grew by $23 billion and credit card balances increased by $20 billion, while student loan balances were roughly flat.

  • Confirming the slowdown in mortgage activity, mortgage originations in Q2 declined to $421 billion from $491 billion. Meanwhile, there were $148 billion in auto loan originations in the second quarter of 2017, an uptick from the first quarter and about the same as the very high level in the 2nd quarter of 2016.
  • Auto loan balances increased by $23 billion, continuing their 6-year trend. Auto loan delinquency rates increased slightly, with 3.9% of auto loan balances 90 or more days delinquent on June 30. The aggregate credit card limit rose for the 18h consecutive quarter, with a 1.6% increase.
  • Outstanding student loan balances rose modestly, and stood at $1.34 trillion as of June 30, 2017. The second quarter typically witnesses slow or no growth in student loan balances due to the academic cycle. As discussed previously, a perilously high 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q2.

In a troubling development, the report noted that the distribution of the credit scores of newly originating mortgage and auto loan borrowers shifted downward somewhat, as the median score for originating borrowers for auto loans dropped 8 points to 698, and the median origination score for mortgages declined to 754. For now this credit score decline has not impacted the credit market: about 85,000 individuals had a new foreclosure notation added to their credit reports in the second quarter as foreclosures remained low by historical standards.

And while much of the report was in line with recent trends, and the overall debt that was delinquent, at 4.8%, was on par with the previous quarters, the NY Fed did issue a red flag warning over the transitions of credit card balances into delinquency, which the New York Fed said “ticked up notably.”

Discussing the troubling deterioration in credit card defaults, first pointed out here in April, the New York Fed said that credit card balance flows into both early and serious delinquencies increased from a year ago, describing this as “a persistent upward movement not seen since 2009.” As shown in the chart below, the transition into 30 and 90-Day delinquencies has, over the past two quarters, surged to the highest rate since the first quarter of 2013, suggesting something drastically changed in the last three quarters when it comes to US consumer behavior.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/08/12/Credit%20Card%20delinquency.jpg

“While relatively low, credit card delinquency flows climbed notably over the past year,” said Andrew Haughwout, senior vice president at the New York Fed. This is occurring within the context of loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards. The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress.

That bolded statement, is the first official warning by the Fed that the US consumer is sick, and the Fed has no way reasonable explanation for this troubling jump in delinquencies. Timestamp it, because this will certainly not the be the last time the Fed warns about the dangerous consequences of all-time high credit card debt.

As for the “further uptick in consumer distress”, we are just guessing but the fact that credit card defaults are jumping at a time when sales at fast food and other restaurants have declined for 17 consecutive quarters, and when $250 billion in US household savings was just “revised” away, may all be connected.

Source: ZeroHedge

%d bloggers like this: