Are consumers nearing the end of their debt path?
There are some indications that they could be and that is not good news for an economy based on consumers who spend money they don't have.
Total consumer debt grew and set another new record in November, according to the Most recent data published by the Federal Reserve. But the growth rate slowed and credit card debt contracted slightly for the third month in the last four.
Total consumer debt grew by $ 12.5 billion to $ 4.176 billion. (Seasonally adjusted). That represents an annual growth rate of 3.6%, below 5.5% in October.
Fed consumer debt figures include credit card debt, student loans and car loans, but do not take into account mortgage debt.
The outstanding revolving credit, mainly credit card debt, fell by $ 2.4 billion, a decrease of 2.7%. That was offset by a healthy increase of $ 14.9 billion (5.8%) in non-renewable credit, including student loans, car loans and financing for other high-value purchases.
Even with the decrease in renewable credit card debt, Americans still owe almost $ 1.1 billion in their plastic.
But the general trend of loans has decreased over the past six months and credit card loans have had a markedly sharp slowdown.
Some are taking the level of indebtedness as a warning signal. As one analyst said an article about Looking for alpha:
It could be that the final consumer of the economy has reached the point where he cannot add more debt. Unlike the federal government that has sovereign dollars to print, the consumer has a fixed amount that he can spend, including the payment of any loan. "
In general, consumer spending and consumer debt tend to move in the same direction. In other words, the drop in loans could indicate that consumers are closing their wallets.
The fall in credit card spending in November could be due to consumers paying balances in preparation for the holiday shopping season. Retail sales showed a healthy increase in December and holiday spending increased a little more than 4% year-on-year. We may see another increase in credit card debt when the December report comes out. But the long-term downward trend in loans should be a matter of concern if its focus is economic growth.
There is also anecdotal evidence that Americans are going crazy when it comes to debts. A study by Northwestern Mutual in 2019 he found that Many millennials are drowning in credit card debts. The study found that "is going out to dinner and travel."
The truth is that American consumers have been boosting the US economy with money they don't have. If they are approaching the limit of credit cards, that is not a good omen for future economic growth. If that moment is not yet upon us, it will be sometime in the not too distant future.
A large percentage of United States GDP growth comes from consumer spending. The headlines have praised the American consumer for "rescuing the US economy." But how Peter Schiff saidIf that is the case, who will rescue the consumer?
If you see where that consumer gets the money, it is credit. Year after year, consumer debt has increased by 5%. So, what is driving consumer spending is debt. ”
Peter has also said The huge levels of debt could indicate that the economy is not as good as experts tell us.
If an economy is really strong, I would think that consumers would assume less credit card debt because they wouldn't need it. They could buy more things that they could really afford. They would not have to borrow. Because the credit card debt is the worst possible debt because the interest rate is so high on the credit card debt. If you can pay your credit card, you will pay it."
The question is how much money can US consumers borrow before the bubble bursts? In effect, consumers are taking from the future to spend on the present. Whether driven by trust or despair, debt-driven spending cannot continue forever. Credit cards have this drawback called a limit. What happens when the future comes? Every penny borrowed finally has to be paid.
During an appearance in RT Boom BustPeter assumed this notion that the American consumer had never been in better shape.
The consumer is fully leveraged. It has record amounts of debt. And the only reason he can spend is because the Fed keeps rates low enough for credit to continue to flow despite the lack of legitimate savings to finance it. Then, all this house of cards will collapse and the consumer will be at the center of it. ”
In a word, the situation is unsustainable and American consumers may be reaching the end of their debt path.