Meanwhile, the current administration in the middle of an election year boasts that the economy is doing very well and Americans are better off. This is the situation in the United States where the White House acts as if nothing were happening, in full alliance with the major left-wing media.
The public debt alone amounts to 34 billion dollars (trillions in English) along with a contraction in industrial activity that exceeds 14 months, a real estate crisis that the government does not recognize with a collapse in sales for two consecutive years and rates of interest between 5.25% and 5-50%, among many other negative indicators.
Delinquency alarm
Experts, banks and lending companies have been on alert since mid-2023 with the arrears of low-income tenants, mortgages unpaid in more than two or three months and a majority that cannot make ends meet with their per capita income.
Millions of Americans are behind on their debt payments and may face further financial deterioration as the year progresses. That large group includes those who resumed paying their student loans.
“The U.S. economy is performing better than forecast a year ago, largely due to a resilient consumer,” Shernette McLoud, an economist at TD Economics, wrote in a report. “But that expense is increasingly financed with credit cards.”
Americans had more than $1.05 trillion on their credit cards in the third quarter of 2023, a record and a figure sure to grow once the Federal Deposit Insurance Corporation (FDIC) for its acronym in English) releases fourth-quarter data next month.
A recent report from credit rating company Moody’s showed that non-performing loan rates and credit card charge-off rates — loans that a bank believes will never be repaid — are now well above their 2019 levels and they are expected to continue increasing.
The Federal Reserve defines the delinquency rate as loans that are more than 30 days late, whether or not they accrue interest, and the charge-off rate as loans removed from the books and charged against loss reserves, and which are annualized, net of recoveries.
These worrying metrics match the average bank credit card interest rate between 21.5% and 29%, the highest since the Federal Reserve began tracking the data in 1994.
financial stress
“The reality is that consumers confirm significant signs of financial stress,” said Silvio Tavares, president and CEO of VantageScore, one of the country’s two main credit scoring systems.
On the one hand, the roughly two-thirds of Americans who own their homes and those who have invested in the stock market and done well are still surviving but using up their savings completely.
Delinquency rates on single-family homes remain low, but have begun to rise and home prices have continued to rise, despite the collapse in property sales over the past two years.
For the rest of Americans, things look much more difficult.
“There are millions of consumers, mostly middle- and low-income renters, who have not benefited from the wealth effect of higher housing and stock prices, and who feel financial stress that will increase levels from 2023. of late payment. Inflation has hit them very hard,” said Warren Kornfeld, senior vice president at Moody’s.
Kornfeld, who last week co-wrote a report analyzing rising delinquency levels, believes they will continue to rise this year to record levels in recent decades.
The worrying state of consumers’ financial health could play a major role in the 2024 elections.
Republicans and economists not aligned with the White House define Biden and his failed economic policies as the main causes of the higher costs of living for most Americans.
The statistics
One way to measure this bifurcation of the American economy is to look at the results of some of the major credit card companies.
Historically, Capital One, Discover Financial and Synchrony customers have been those with lower credit scores, while American Express typically serves the richest and most affluent.
At Synchrony Bank, the largest issuer of co-branded retail credit cards, the cancellation rate jumped from 3.5% to 5.6% in a year. Meanwhile, about 4.7% of Synchrony customers are 30 days or more late on their bills, which is also higher from a year ago.
Discover customers have balances of $102 billion on their credit cards, up 13% from a year ago. Meanwhile, cancellation and 30-day delinquency rates have increased. Executives say they notice the impact of inflation.
“Think about a consumer who makes $50,000 a year,” John Green, Discover’s chief financial officer, said at an investor conference in December. “When inflation exceeds wage growth, they make decisions in terms of how much they are going to spend, what bill they are going to pay, and what, frankly, they are going to leave as an option.”
The inflation that the government “does not see”
Inflation peaked at 9.1% in June 2022 and is now above 3%, according to the Biden administration in the midst of the election campaign. The majority of consumers suffer from a very different reality when it comes to paying for their daily needs.
However, the costs of many goods and services are still high and others continue to rise after three years of severe inflation.
A loaf of bread that cost $1.54 in December 2020 (when it had already risen) is now above $2.05 on average, but in many states the figure almost doubles.
A gallon of gasoline has increased from an average of $2.17 to $3.29 in the same period, according to the Bureau of Labor Statistics. And in 2022 it exceeded $5 on average. In some regions, drivers paid above $6 and $7.
Renters, in particular, have felt the impact. The median rent for a property with up to two bedrooms has increased from $1,424 at the end of 2020 to $1,713 at the end of last year, according to the realtor.com website.
VantageScore’s Tavares worries that the recent resumption of student loan payments will further impact Americans’ ability to afford their debt.
“People are having difficulties facing these obligations that they have not had to pay in three years due to federal measures after the pandemic. This now impacts younger people,” Tavares said.
American Express has also seen its cancellation and delinquency rates increase over the past year, but not as much as its competitors.
AmEx has historically served customers with higher credit scores who pay off their cards at the end of each month. But even now there are more AmEx customers who have unpaid balances. AmEx’s net churn rate last quarter was 2%, higher than 1.2% a year earlier.
Banks and loans
In the middle of the spectrum are JPMorgan Chase and Bank of America, two giant banks with huge customer portfolios. Their credit metrics have increased modestly, likely because both banks’ customers span the entire range of income levels and credit scores.
In general, all banks have set aside more money to cover possible credit losses, mainly due to their portfolios of credit cards and mortgage loans, when homes have been purchased at record prices with a high interest rate.
It is highly unlikely that Americans will see any relief—from banks or interest rates in the short term—that will allow them to refinance their high-interest debts.
The Federal Reserve said its first interest rate cut is months away. Additionally, credit card interest rates tend to be extremely higher compared to what the Federal Reserve charges for loans.
Banking industry sentiment reports show that financial institutions are becoming more conservative in lending, meaning these Americans will be less likely to be able to refinance their high credit card bills at lower interest rates.
At this point, White House-aligned economists do not believe the financial strain low-income Americans have suffered over the past three years will spread to the broader economy. Not for the moment.
But independent economists and other experts see this rise in delinquencies as one of the growing risks to the economy this year, especially if student loans become too much for younger, more indebted Americans and insurance, services and staples They do not go down or continue to rise.
The increase in delinquencies has already sounded the alarm in the last 12 months. In 2024, these alarms are expected to ring even louder and millions of Americans will reach almost total financial asphyxiation.
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Source: With information from AFP, AP and other sources.
