This year, credit card balances soared past $1 trillion for the first time, powered by rising prices and rising interest rates that made it increasingly expensive to carry a balance.
Meanwhile, the share of credit card debt falling behind for the first time climbed to 8% in the third quarter. That’s up from 6.5% in the first quarter of 2023.
It’s been more than a decade since the share of 30-day credit card delinquency was that high, according to household debt statistics from the Federal Reserve Bank of New York.
At a time when markets wonder about the ongoing strength of consumers and their mood, new Goldman Sachs estimates say credit card delinquencies will keep rising in the new year.
The rate of new credit card delinquencies will climb to 9.5% by the first half of 2024 before it eases to around 9% by the end of the year, researchers said in a Thursday note. Low-income card holders will be strained the most, they added.
Despite the doom-and-gloom that I profess, Mr Detrick (twitter) makes an interesting case
Ryan Detrick, CMT @RyanDetrick
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How bad are things?
Stocks at all-time highs
Gold at all-time highs
Home values at all-time highs
Bonds up 5% for the yr after a historic two yr bear
Net wealth at all-time highs
Debt relative to incomes no where near historic highs
Things appear to be better than most think.
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Of course, I am forced to wonder “What does a bubble look like? How would it be different?”
Other market experts have warned of a coming credit event as rising interest rates take a toll on the economy. Bank of America said debt accumulated over the past decade when interest rates were ultralow was about to run into trouble, adding that it saw about $1 trillion of private debt headed for potential default as borrowing costs were rising.
Defaults and delinquencies on high-risk corporate debt are already on the up. Charles Schwab said total corporate defaults and bankruptcies were likely to surge through the end of the year, with a peak likely in the first quarter of 2024.
Trouble is also brewing in the public-debt picture, with the US’s total debt notching $33 trillion for the first time this year. Goldman Sachs estimated that under a higher-for-longer interest rate regime, total costs on the US debt balance could hit a new peak by 2025.
*The good news is that the economy is growing, but Spitznagel said even this fact was a “Pyrrhic victory.” *
“You take a victory now for suffering later. That’s exactly what monetary interventionism does: It’s giving you something now, and you have to pay for it with a lot of interest later. And, of course, that’s what federal debt is too — it’s our grandchildren’s problem.”
All that spells trouble for the overall market, which could feel pain as the credit bubble deflates across the economy.
there is no historically massive unemployment event like COVID ever in the history of the United states, i would be a bit leery depending on historical charts for such an unprecedented event.
Correct.
and that has been (one of) my main point(s) all along.
The current economy is being buoyed by spending out the pile of helicopter money left over from the great COVID giveaway.
Thing 1)
I grow corn. I eat a lot of corn because I grow a lot of corn.
Thing 2)
My fields are much less productive. I cannot even grow enough corn to feed my family. I am feeding my family, for now, only because a while ago someone dropped off a truckload of corn. I am eating the dropped-off corn. My fields don’t grow enough corn to feed my family.
Evidence is stacking up showing Americans are saving less and drawing down their existing savings cushions.
The latest: The share of adults who say they can cover six months of expenses using their savings is considerably lower than it was last year, according to polling from Morning Consult.
And the share that simply doesn’t know how long their savings will carry them has grown, to about 21%, from 15.5% in July 2022. The big picture: The savings drawdown shows how consumption patterns are sticky — people want to maintain their lifestyles, even if it costs more and they have to dip into their savings, says Jesse Wheeler, senior economist at Morning Consult.
This spending has been buoying the economy — though it’s unclear how long that’ll last.
I would watch the growing default rate in credit cards, vehicle loans and mortgages to determine when the remaining reserves have been wrung out of the hands of individual consumers.
Barring future unexpected events, some economists think present conditions still have the potential to usher in a recession in the coming year.
“The recession is just delayed, but not completely removed,” said Kathy Bostjancic, chief economist at Nationwide Mutual.
One metric Bostjancic has been keeping close tabs on is employment in the private services sector, excluding health and education. The remaining sectors within private services — such as transportation and leisure and hospitality — are more cyclical, meaning they are more vulnerable to economic downturns. So studying movements in that sector gives her a better sense of the state of the economy, she said.
In November 2022, monthly hiring in the private services sector excluding health and education equaled 92,000, according to Labor Department data. However, the November 2023 jobs report shows a steep drop, with 22,000 new hires in the sector.
Overall, job growth has been solid over the past year, which has helped keep the unemployment rate below 4%.
Bostjancic isn’t convinced that will carry over into the new year, though. She thinks there’s a 65% chance of a mild recession in 2024 and predicts the unemployment rate will rise to 5% by the third quarter.
Thank you.
I always feel vindicated when someone posts a an article with a little bit of intellectual analysis. (such as which sectors/industries are expanding and which are laying-off.
Not surprisingly “temporary employment services” is very cyclical. The tendency is, when it dip into negative territory a recession follows:
In fact, until very recently, it has been an absolute predictor of the GDP.
HOWEVER
post-COVID they started moving in opposite directions. Unprecedented!
It is obviously related to something we did before then (COVID bailouts), and tends to indicate a K-shaped economy, but it is kind of a Rorschach test so, who knows?
During Berkshire’s annual meeting, Warren Buffett cautioned that the majority of their businesses are expected to report lower earnings this year compared to the previous year. This statement is somewhat surprising given Buffett’s historically bullish stance on the U.S. economy.
Buffett’s recent cautionary remarks mark a significant departure from his usual optimistic view of the U.S. economy. So, what has led to this change in perspective? It’s a combination of several factors, including persistent high inflation, escalating interest rates, and an ongoing banking crisis. These challenges have collectively contributed to Warren Buffett and his longstanding business partner, Charlie Munger, adopting a more prudent stance regarding the prospects for investment returns in the upcoming year. Munger succinctly summed it up by saying, “Get used to making less.”
Stocks right now are priced to perfection, so if earnings (which start in a few weeks) come in light, I would anticipate a significant pullback.
Economic returns are grounded in consumer spending. As more and more consumers run out of the ability to maintain, let alone increase, their spending it is going to get very interesting.
