Late-Cycle: The Stressed-Out, Tapped-Out American Consumer Just Paid Off A Ton Of Credit-Card Debt

A new report from WalletHub, the personal-finance website, could signal the U.S. economy is in late-cycle, as the stressed-out, tapped-out American consumer just rejected consumerism and has overwhelmingly decided to repair its overextended balance sheet instead.

While President Trump pedals the notion that the economy is the “greatest economy in HISTORY,” WalletHub noticed a considerable amount of Americans repaid $40.3 billion in credit card debt during the first quarter of 2018 — the second-largest quarterly payoff ever (via data from the U.S. Census Bureau, Federal Reserve and credit agency TransUnion).

Q1 2018 Credit Card Debt Paydown by City

Top 18 Largest Paydown Cities 

However, WalletHub noted that Americans started the fiscal year by “owing more than $1 trillion in credit card debt for the first time ever, after adding a post-Great Recession record $91.6 billion to our tab in 2017.”

With credit card spending went through the roof, the consumer hit a decade low on their personal savings rate of 3 percent in the first quarter. In other words, the consumer is tapping into credit cards and savings to support an unsustainable debt-fueled lifestyle of which propaganda from the government and or the Federal Reserve have induced the stressed-out consumer to buy things they do not need.

“Only four times in the past three decades have we overspent so much in a year. And in each case, the charge-off rate – currently near historical lows – rose the following year. That’s true so far, as charge-offs jumped nearly 5% from Q4 2017 to Q1 2018,” said WalletHub.  

Here are WalletHub Main Findings: 

Outstanding credit card debt is at the second-highest point since the end of 2008.

Chart

The $40.3 billion in credit card debt that we repaid in Q1 2018 is 23% above the post-Great Recession average. It is also the second highest pay-down in history - second only to Q4 2008's collapse.

Two

We ended 2017 with $91.6 billion in new credit card debt, most for a year since 2007 and 104% above the post-recession average.

Three

Since the end of the Great Recession, consumer performance has regressed on a year-over-year basis in two out of every three quarters.

Four

At 3.80% for Q1 2018, the charge-off rate is up nearly 6% year over year and at the highest point since mid-2012.

“Make America Great Again” means the consumer will spend money they do not have and buy things they do not need.

Teddy Vallee, a consumer analyst tweets, “Multiple indications of wage growth acceleration; however it’s being used to pay down outstanding debt rather than drive incremental consumption (see recent revolving credit numbers). Given leveraged consumer BS’s, next iteration in cycle is a rise in 30-day delinquency rates.”

Saving more by servicing consumer debt might make sense for the stressed-out, tapped-out American consumer in one of the longest Central Bank induced economic expansions ever; however, it could be more bad news for the service based economy when everyone decides to save all at once to service debt, since the trend could lower the level of consumption and set up the economy for the next recession.

* * *

Consumers are being squeezed by a triple threat:

And that squeeze is showing up as the first big crack in credit card balances as the perennially debt-fueled lifestyles (sparking all that optimistic consumption) is hitting a wall.

And as a reminder, the yawning gap between exuberant confidence and desperately low savings rates has not ended well in the past...(what happened to stocks in 2000 and 2007?)

And judging by the size of the drop in the charts above, we may just be about to find out this time is not different.

Comments

Pool Shark Au_Ag_CuPbCu Mon, 06/18/2018 - 15:31 Permalink

Hate to quote Buffet, but he's right:

"Until the tide goes out, you can't see who's been swimming naked."

When the next tide goes out, there will be a vast number of 'mericans with no net worth. They financed everything and hold no equity whatsoever.

If you want to be rich; live like you're poor.

If you want to be poor; live like you're rich.  

In reply to by Au_Ag_CuPbCu

Escrava Isaura Shocker Mon, 06/18/2018 - 15:40 Permalink

Swimming naked???

Jared Kushner, a White House aide and President Donald Trump’s son-in-law, appears to have drawn more money out of three separate lines of credit in the months after he joined the White House last year, a newly released document shows.

Recent revisions to the financial disclosure form filed by Kushner’s wife, Ivanka Trump, bumped up each of those debts to a range of $5 million to $25 million.

The changes take Kushner and Trump’s reported debts to a range of approximately $31 million to $155 million from the previously reported range of between about $19 million and $98 million.

She’s a multimillionaire. Her husband’s a multimillionaire. Her dad’s a reported billionaire. Why, then, is first daughter Ivanka Trump swimming in credit card debt?

Whatever the case, it seems Ivanka has no excuse to be clueless about credit card debt. Her own website features an article titled “5 Rules of Credit Cards.” In fact, the fourth rule in the article is “Be smart about payments.”

Follow the rules, Ivanka!

https://www.politico.com/blogs/under-the-radar/2018/02/13/jared-kushner-debts-404041

 

In reply to by Shocker

waspwench Escrava Isaura Mon, 06/18/2018 - 16:01 Permalink

Billionaires and their offspring do not "swim in credit card debt."   Credit card debt is for the proles who pay usurious interest rates.   Very wealthy people have other sources of credit ("lines of credit") and the Kushners will be paying a very low interest and investing the borrowed money.   They will indoubtedly have inside information regarding investments, and they will become even richer, and will have used low interest, borrowed money to do so.   Insider-trading is a way of life in DC.  

 

In reply to by Escrava Isaura

SunRise Escrava Isaura Mon, 06/18/2018 - 18:57 Permalink

So what do a Liar and a Thief have in common?

ANS:  They're both attempting to get something for less than it's honest cost.

 

Jeremiah 17:9 English Standard Version (ESV)

The heart is deceitful above all things,
    and desperately sick;
    who can understand it?

 

2 Timothy 3:13

while evil people and impostors will go on from bad to worse, deceiving and being deceived.

In reply to by Escrava Isaura

roddy6667 Shocker Mon, 06/18/2018 - 22:06 Permalink

that doesn't make any sense. Typically, when the chance of better jobs and higher income present themselves, people feel safe going into debt because they can afford the payments. If bad times loom, people try not to incur more car loans, mortgages, etc, because they vear they can't make the payments.

All this blather about "jobs coming back". Why hasn't the per capita income or median household income risen? Huh? Are these people working for free?

In reply to by Shocker

Giant Meteor Au_Ag_CuPbCu Mon, 06/18/2018 - 15:46 Permalink

How? My understanding of it is, the fiat consumerist e con nomy needs ever growing credit creation, expansionism to maintain the empires perpetual growth illusion, a vital concern when relying on so called "perpetual growth" that is needed to sustain fraudulent markets through financial alchemy, legerdemain supporting ever increasing retirees, and government pensioners. In short, it is the same reason banks call those whom pay off their credit card balances EACH month (on time), cheats, slugs, bottom feeders ..

In reply to by Au_Ag_CuPbCu

Janet smeller RedBaron616 Mon, 06/18/2018 - 18:20 Permalink

The paying down of the debt is fundamentally good, but there will definitely be pain if too much gets paid down. Remember, the interest to pay back the lones was never created, therefore there really isn’t enogh money in circulation to pay everything back. Credit exspansion IS necessary to keep the current system going, but the bankers will take us to war before we have a credit crisis that exposes them 

In reply to by RedBaron616

MontgomeryScott thatthingcanfly Mon, 06/18/2018 - 22:55 Permalink

When I depressed the clutch PEDAL and started my vehicle, the wash from my engine fan dislodged some Rose PETALS from the bush I was parked next to. I shall now PEDDLE them to the florist who is selling flower arrangements (he only accepts VISA, by the way), in order to gain enough credit to plant a new Rose bush to make up for the lost PETALS and to buy a new PEDAL pad for my clutch arm; as the old one is now worn down by depressing the PEDAL and dislodging the PETALS.

THE SPELLING FAIRY AWAKENS!

Hope that shit works out for you.

In reply to by thatthingcanfly