All articles tagged with #consumer debt
Steve Eisman warns that the US economy's apparent growth is largely driven by AI investments, with real economic activity stagnating without them, and highlights signs of consumer and auto sector distress indicating underlying weaknesses.
Auto loan debt in the US has reached $1.66 trillion, with rising delinquencies and repossessions, especially among younger and higher-credit-score borrowers, raising concerns about a potential economic crisis similar to 2008, and prompting calls for congressional action to protect consumers.
Rising delinquencies on credit cards and auto loans among high-income Americans signal vulnerabilities in the US economy, driven by slowing hiring, high interest rates, and increased financial stress, especially among white-collar workers, despite overall debt levels decreasing relative to GDP.
The article explores the rise of 'buy now, pay later' (BNPL) services, their appeal especially to young people and those with limited credit, and the potential risks and regulatory challenges they pose, including increased consumer debt and the erosion of traditional financial protections, all while serving as a modern extension of lifestyle subsidies that have historically shaped consumer habits.
The increasing use of 'buy now, pay later' loans for groceries indicates changing consumer habits and may reflect rising financial stress and inflation, as families like Tia Hodge's use short-term credit options to manage higher food costs.
Donald Trump, with support from Bernie Sanders, plans to cap credit card interest rates at 10% to alleviate the burden of high credit card debt on Americans, which currently stands at $1.17 trillion. While this could reduce interest payments, it may also limit access to credit for riskier borrowers, potentially pushing them towards more expensive alternatives like payday loans. Natasha Sarin, a Yale Law School professor, suggests addressing hidden fees in credit card contracts as a more immediate solution.
In the months leading up to the Federal Reserve's rate cuts, over 50 major U.S. retailers, including Big Lots and Gap, increased interest rates on their store-branded credit cards to record highs, aiming to boost profits amid sluggish sales. This move, which saw APRs rise significantly, was made to protect profits as the Fed's rate cuts would lower the interest retailers could charge. The average store card APR is now at an all-time high, raising concerns for consumers, especially as credit card debt and delinquencies rise. Despite some retailers passing on recent Fed rate cuts, APRs remain elevated, impacting consumer spending decisions.
Financial planner Bryan Kuderna warns that store credit cards can lead to severe long-term financial issues due to high interest rates, late payment fees, and potential negative impacts on credit scores. These cards, often pitched at the point of purchase, can entice consumers with immediate savings but result in significant debt and financial complications. Kuderna advises consumers to thoroughly evaluate the necessity and terms of such cards and to practice good budgeting and debt management if they choose to apply.
The US economy is currently experiencing mixed signals, with low unemployment and rising wages juxtaposed against high consumer debt and inflation concerns. While job openings exceed pre-pandemic levels and wages are up, inflation remains above the Federal Reserve's target, and consumer debt is rising, leading to potential economic risks. Presidential candidates offer contrasting views, with Biden highlighting economic strengths and Trump emphasizing weaknesses. Economists caution that while the economy appears robust, significant challenges persist, particularly with consumer debt and inflation expectations.
Despite facing high interest rates and steep prices, Americans increased their spending in March, with retail sales jumping 0.7%, exceeding economists' forecasts. Excluding volatile measurements, sales climbed 1%, but the data is not adjusted for inflation. While consumers continue to spend at gas stations, grocery stores, and online retailers, they pulled back spending at electronics, clothing, and furniture stores. The strong job market and wage increases have supported consumer spending, but economists anticipate caution as student loan payments resume and credit card debt reaches record levels.
Some consumers are regretting their use of buy now, pay later (BNPL) services, as overspending has led to financial strain and anxiety. While these services have been popular for their flexibility and low interest rates, some users have found themselves accumulating significant debt, prompting warnings to others. Financial experts and researchers have raised concerns about risky spending on BNPL platforms, with some users reporting difficulties in managing their debt. Lawmakers and regulators are also calling for more scrutiny of BNPL services to protect consumers from potential exploitation.
Some consumers are regretting using buy now, pay later (BNPL) services due to overspending and financial strain, with one individual accumulating $6,000 in BNPL loans over two years. Financial experts warn of risky spending on BNPL platforms, as users tend to consume extra and incur more fees and interest. The Consumer Financial Protection Bureau found that BNPL users had higher credit card utilization rates and lower credit scores than non-BNPL borrowers, with Black and Hispanic consumers being more likely to borrow on BNPL. While BNPL services offer payment flexibility, some lawmakers and consumers are calling for more scrutiny and caution when using these services.
The New York Federal Reserve reported a more than 50% surge in credit card delinquencies in 2023, with total consumer debt reaching $17.5 trillion. Delinquencies also rose in mortgages, auto loans, and other categories, signaling increased financial stress, particularly among younger and lower-income households. Household debt increased by $212 billion in the quarter, with credit card debt jumping 14.5% from the same period in 2022. Higher interest rates, driven by the Federal Reserve's tightening cycle, likely played a role in the delinquency rates. Despite some forgiveness of student loan debt by President Joe Biden, the total student loan debt remained largely unchanged, while mortgage debt increased by 2.8% in 2023.
In 2016, Kanye West claimed to be $53 million in debt and asked Mark Zuckerberg for a $1 billion investment, while also criticizing Silicon Valley billionaires for not supporting artists. Consumer debt in the U.S. has risen, with total household debt reaching $17.29 trillion in Q3 2023. Factors contributing to this increase include spending of pandemic savings, inflation, and rising interest rates. Economists anticipate a potential recession, with vulnerable households likely to be most affected.
Despite the Federal Reserve's ongoing fight against inflation, the rate of inflation has slowed down, with the 12-month rate measured at 3.1% in November and forecasted to remain unchanged for December. While prices are not reversing, the slowdown in price growth for food and energy has been more aggressive. Consumer sentiment remains depressed, but there are signs of improvement as wage growth surpasses inflation and consumer confidence increases. Economists view consumers' increasing debt burdens as a sign of growing optimism, and expect wage growth to continue outpacing inflation, leading to small gains in purchasing power.