Thursday, 09 July 2009 01:00

Consumer debt on a record rise

Consumer debt delinquincies are rising. They are rising more than they have ever risen before (at least on record. See the latest data from the Fed: pdf Fed_consumer_credit_outstanding_june_2009 09/07/2009,08:07 15.40 Kb then read the following article from Marketwatch.com:

WASHINGTON (MarketWatch) -- The number of consumers who were delinquent on their loans rose to a record level in the first quarter of 2009, according to the American Bankers Association.

The ABA's composite ratio, which tracks delinquencies in eight consumer loan categories, rose to 3.23% in the first quarter, compared to 3.22 % in the previous quarter. The delinquent balances on those accounts also rose from 3.16 % to 3.35 % of total balances due. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

The ABA cites high job losses as a major factor for the delinquencies.

"The number one driver of delinquencies is job loss," said ABA Chief Economist James Chessen in a statement. "When people lose their jobs, they can't pay their bills. Delinquencies won't improve until companies start hiring again and we see a significant economic turnaround."

Chessen added that job growth is not likely to improve in the foreseeable future.

"However, many people are taking greater control of their finances by cutting spending, lowering debt and saving more money," he said.

In addition to overall loan delinquencies, the ABA reported that bank card delinquencies, which are credit cards provided by a bank, rose to 4.75 %, from 4.52% in the previous quarter. The balances on those delinquent accounts rose to 6.6 % of the value of all outstanding bank card debt - marking a new record - from 5.52 %.

Other delinquent rates reported by the ABA:

  • Home equity loan delinquencies increased to 3.52 % from 3.03 %.

  • Mobile home loan delinquencies increased to 3.7 % from 2.96 %.

  • Personal loan delinquencies increased to 3.47 % from 2.88 %.

  • Direct auto loan delinquencies increased to 3.01 % from 2.03 %.

  • RV loan delinquencies increased to 1.52 % from 1.38 %.

  • Property improvement loan delinquencies decreased to 1.46 % from 1.75 %.

  • Indirect auto loan delinquencies decreased to 3.42 % from 3.53 %.

  • Marine loan delinquencies decreased to 2.04 % from 2.35 %.

Last modified on Thursday, 09 July 2009 01:00

2 comments

  • Comment Link dkn Monday, 13 July 2009 22:44 posted by dkn

    As of Q1 2009 there is $13.8T of household debt:
    http://www.federalreserve.gov/releases/z1/Current/z1r-4.pdf

    --$2.5T of this is termed "consumer credit", ~$1T of which is revolving (credit card primarily), ~$1.5T of which is non-revolving (mobile homes, education, boats, trailers, or vacations).
    --$10.5T of this is mortgage debt.
    --$800B is "other".

    This spending is what is propping up consumer spending. "Personal Consumption Expenditures" is around $10T as of Q1 2009. This is 70% of our GDP.

    In addition to the credit losses, I really would not underestimate what this is telling us about the ability of the consumer to spend money.

    This is Household Debt / GDP:
    http://1.bp.blogspot.com/_2fuk3iGxQxM/Sj9DfEVHWLI/AAAAAAAACkY/OS9sS1OjDI8/s1600-h/yihaa.JPG

    This is the effect of the household debt feeding through into GDP:
    http://2.bp.blogspot.com/_2fuk3iGxQxM/Sjdef7hxWAI/AAAAAAAACjo/I_XRpZ8HFDU/s1600-h/boom+and+bust.JPG

    ... and into corporate profits:
    http://4.bp.blogspot.com/_2fuk3iGxQxM/SjdknCya6KI/AAAAAAAACjw/FIp3AyYP75k/s1600-h/profits.JPG

    Suddenly corporations are unprofitable. This means we need to worry about corporate debt, and financial debt. These debts are supporting the companies who are now losing money.

    --There is $32.3T of non-household private debt as of Q1 2009, in addition to the $13.8T of household debt.

    And at the end of the day the market is priced off of the earnings of companies, who are now losing money.

    If consumers cannot support the debt they've already got, think they can support a whole bunch of new debt? Not a chance in hell.

    See the problem here?

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  • Comment Link gjk313 Thursday, 09 July 2009 10:20 posted by gjk313

    It does seem that the % increase in delinquencies is concerning but overall, what is really considered a high number? I would think overall anything over 5% would be very bad but % under 3 for some of the categories does not seem all that bad considering how bad the economy is right now. Although the credit card # is scary.

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