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business newsLatest US Credit Trends Raising Red Flags
By
David C Nelson
Sep 20, 2011 10:30 am
Consumers are amassing more debt, and in recent months, positive credit metrics like we saw in the first quarter of 2011 have started to reverse.
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The latest credit trends in the country are starting to send up red flags. Clearly consumers are amassing more debt, and in recent months, positive credit metrics like we saw in the first quarter of 2011 have started to reverse.
We added $18 billion of credit card debt in the second quarter, and at this pace, the $54 billion we could see this year shows that Americans are starting to turn to their cards to live day to day. Next time you’re in line at the supermarket, listen to the cashier when she says "debit or credit?" Increasingly you will hear the customer in front of you say “Credit.” Not a good sign.
(Click here for David's Fox News Interview on Credit Cards.)
Last year when consumers added $9 billion in credit card debt, our economy was on the mend and the employment picture was starting to brighten. Consumers were starting to spend more in anticipation of better times ahead.
Today we have the polar opposite. Unemployment remains high, investors are dealing with 300-point daily swings in the market and Washington is unable to get anything done. When it comes to putting food on the table and clothes on your kids' backs, the credit card is coming out of the wallet.
Other Signs
For more than a year I have been impressed with the falling charge-off rates at credit card companies. Recently we have seen the first chinks in the armor. Last week Citigroup (C) and Capital One (COF) both reported a slight increase in charge-off rates. It’s a little soon to say the trend has reversed but investors in these stocks will be watching closely.
Current Thoughts
Earlier in the year I thought the economy was going through a soft patch, but it’s clear that QE 2 did little to provide sustained economic growth, and the economic data continues to disappoint. Washington missteps and the crisis in Europe only add to the uncertainty. While the prospects for a recession have increased, we are not looking at a 2008 scenario and hence the damage will be less severe.
Editor's Note: This article was originally published on Belpointe.
Twitter: @davidnelsoncfa
We added $18 billion of credit card debt in the second quarter, and at this pace, the $54 billion we could see this year shows that Americans are starting to turn to their cards to live day to day. Next time you’re in line at the supermarket, listen to the cashier when she says "debit or credit?" Increasingly you will hear the customer in front of you say “Credit.” Not a good sign.
(Click here for David's Fox News Interview on Credit Cards.)
Last year when consumers added $9 billion in credit card debt, our economy was on the mend and the employment picture was starting to brighten. Consumers were starting to spend more in anticipation of better times ahead.
Today we have the polar opposite. Unemployment remains high, investors are dealing with 300-point daily swings in the market and Washington is unable to get anything done. When it comes to putting food on the table and clothes on your kids' backs, the credit card is coming out of the wallet.
Other Signs
For more than a year I have been impressed with the falling charge-off rates at credit card companies. Recently we have seen the first chinks in the armor. Last week Citigroup (C) and Capital One (COF) both reported a slight increase in charge-off rates. It’s a little soon to say the trend has reversed but investors in these stocks will be watching closely.
Current Thoughts
Earlier in the year I thought the economy was going through a soft patch, but it’s clear that QE 2 did little to provide sustained economic growth, and the economic data continues to disappoint. Washington missteps and the crisis in Europe only add to the uncertainty. While the prospects for a recession have increased, we are not looking at a 2008 scenario and hence the damage will be less severe.
Editor's Note: This article was originally published on Belpointe.
Twitter: @davidnelsoncfa
No positions in stocks mentioned.
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