Article Link: Consumers nearly T in debt: This could end badly
While rising debt issuance usually points to a strong economy, danger could be lurking ahead.
Last year, credit card debt in the U.S. surged by approximately $71 billion to $917.7 billion, according to a new study from CardHub.com. The research also found that most of the debt accrued in 2015 came in the fourth quarter, when Americans tacked on more than $52 billion.
“With 7 of the past 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits,” CardHub CEO Odysseas Papadimitriou said in a statement.
Fourth-quarter credit card debt also grew at its largest pace since the Great Recession, CardHub also said.
“It is something we need to keep an eye on if borrowing continues to grow rapidly,” said Scott Hoyt, senior director at Moody’s Analytics. He also said the implications of rising credit card debt would be similar to what happened in the recession, “when consumers became overly leveraged.”
David Santschi, CEO of TrimTabs Investment Research, said “it’s usually a good sign when … credit card debt is rising” because it usually means consumers are spending more money.
However, Steve Blitz, chief economist at ITG Investment Research, said this increase is “just a signal that there’s more people working,” adding that consumers are not necessarily taking on more debt.
“The willingness of an individual to increase their leverage is the ultimate vote of confidence in the economy,” he said.
The U.S. economy added 2.45 million jobs last year. In 2016, more than 400,000 positions have been created as of February, with the unemployment rate holding at 4.9, its lowest level in nearly eight years.
Nonetheless, wage growth remains stagnant. U.S. workers earned 3 cents less an hour last month.
“The drop in February [wages] was pretty sharp,” Santschi said. “The wage situation does not get as much attention as the headline number and the unemployment rate, but it’s evidence that the economy is basically flatlining.”
Source: CNN Investing