Although Federal Reserve Chairman Jerome Powell told reporters on July 27 after the Federal Open Market Committee delivered a second 75 basis interest rate hike in as many months, the largest since 1994, “I do not think the U.S. is currently in a recession,” data shows that ordinary Americans are in trouble.
40 percent of Americans admitted that amidst inflation, they simply cannot put any money at all into savings, stated a July 27 CNBC article citing data from debt collector American Consumer Credit Counseling.
Additional data compiled by the outlet from a survey conducted by Bankrate in early June found that 23 percent of respondents said they simply have no savings at all.
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CNBC noted that as of Q2, the rate of consumers who shared that the rising cost of goods had impacted their family’s lifestyle had risen sharply to 48 percent from 39 percent in Q1.
The picture is one with more shadows than highlights. A July 18 survey by LendingTree saw 43 percent of respondents state that they expected to increase their debt load in the next six months, primarily in the form of auto loans and credit cards.
61 percent of all Americans are saddled with debt, LendingTree stated, noting that credit cards are the primary driver at 70 percent.
70 percent of Generation X is also in debt, they added.
As for sources of debt, the greatest contributors were necessities, emergencies, and health or medical issues, reported by roughly a third of respondents each.
One of the most significant signs of real economic problems manifesting is in delinquencies on vehicle loans.
Because auto loan payments are taken directly from the debtors’ bank accounts — and failure to pay results in nearly guaranteed repossession — when people don’t pay their car payments, it’s almost always because they can’t.
A July 26 article on the subprime car loan industry by MarketWatch noted that, “Loan delinquencies have been rising this year as the pandemic boost from government stimulus checks fades.”
Data showed that the number of 60-day past due delinquent loans had reached a level not seen since December of 2019, and is still trending upwards, as evidenced by the asset-backed bond market.
A Portfolio Manager for Braddock Financial, Toby Giordano, claimed in comments to the outlet that “from a balance sheet perspective,” consumers “are in good standing with excess savings to meet their financial obligations.”
But Giordano conceded, “Having said that, certainly there are early signs of cracks to consumer credit and strains…I’d expect it to materialized [sic] more in the subprime borrower.”
Data showed that full repossessions were already trending above 2020 and 2021’s figures year over year, but all three years were nonetheless significantly lower than 2019.
Additional data by LendingTree on U.S. consumer credit card debt statistics from the Fed showed that Q1 credit card debt amounts to $841 billion, which actually dropped by $15 billion compared to Q4 2021, a figure that, at first glance, sounds bullish.
However, in Q1 1999, this figure was only $478 billion.
The article notes that the datapoint marked the first of its kind since Q1 2021, and is $86 billion less than the all time high set in Q4 2019.
The cause is likely because credit card balances were paid down by Coronavirus Disease 2019 (COVID-19) central bank helicopter stimuli.
LendingTree explained the problem, “Card debt showed hockey-stick growth until the financial collapse in 2008, when balances fell from $866 billion in the fourth quarter of 2008 to $660 billion in the first quarter of 2013.”
Meanwhile in Canada, the housing market is set for a “historic” correction, stated Royal Bank, the country’s largest bank, after the Bank of Canada issued a 100 basis point rate hike in July.
Some citizens on variable rate mortgages have reported being called upon for more than $600 extra per month on their house payments, simply on account of pre-July rate hiking.
The Bank of Canada’s key rate now sits at 2.5 percent, which was matched by the Federal Reserve after July’s rate hike.
During the Fed’s press conference, Powell told reporters, there is no recession, “And the reason is, there are just too many areas of the economy that are—that are performing, you know, too well.”
“I think you do see weakening—some slowdown, let’s put it that way—in growth,” he added in response to another question.
The presser truly was awash with mixed messaging. In another answer, Powell stated on the one hand “in all probability” that “demand is still strong and the economy is still on track to continue to grow this year.”
Only to concede in the next sentence, “But the slowdown in the second quarter is notable. And, you know, we’re going to be watching that carefully.”