Even though it doesn’t come as a surprise, it was revealed that more and more U.S. citizens are having problems paying their credit card bills. Obviously, this confirms that the country has an economy reliant on consumer spending for some two-thirds of the overall activity.
Things are worse the during the crisis!
According to Business Insider, the total debt in the United States reached record highs recently, surpassing even the peaks seen before the financial crisis in 2008. Therefore, several important banks in the country, as well as credit card companies reported a rise in credit card delinquency rates for August. And this was the second consecutive monthly rise.
On the other side, this spike is still not considered a major threat to the growth outlook, at least for the moment. Michael Pearce, economist at Capital Economics, believes that the prospect of higher interest rates, issued by the Federal Reserve in 2018, could cause serious problems.
“The increase in new delinquencies may be an early sign of stress in household finances,” he revealed in a note on Friday.
Pearce also added that credit card lending can be considered one of the most expensive forms of borrowing, but still, missing a payment doesn’t imply the same amount of risk of repossession as being late with mortgage or car payments.
“The rise in new delinquencies is difficult to square with the continued strength of the labor market,” he concluded.
The Feds are skeptical about 2018
The Federal Reserve expects to see growing borrowing costs next years, as well as winding down the large balance sheet, considering that the unemployment rate in the United States is close to reaching a historical low. And this can happen in spite of an inflation rate that tries to undershoot the 2% target, issued by the central bank.
Finally, the same Michael Pearce declared that he does not see the potential for a short-term economic or financial fallout coming from the credit-card sector – except cash back credit cards or rewards cards -, even though the delinquency rate will go even higher.
