A Scary Story Keeps Getting Scarier

Proprietary Data Insights

Top Mega And Large Cap Financial Services Stock Searches This Month

Rank Name Searches
#1 Visa 187,572
#2 Citigroup 64,380
#3 Bank of America 51,978
#4 PayPal 51,726
#5 JPMorgan Chase 42,364
#7 Wells Fargo 17,347
#11 Mastercard 10,478

 

A Look Back Before We Look Ahead 

In May, The Juice sounded the alarm on household debt and personal savings

On Debt

  • In Q1, four of the country’s biggest banks – Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC) – reported 20%-plus increases in consumer credit card spending.
  • In March, national household credit card debt increased 21.4% year-over-year to hit a record high. 
  • Between Q4/2021 and Q1/2022, home equity loan originations rose 17.4% at BofA.  

On Savings

  • Personal savings declined 11.6% month-over-month in April, and was down 44.3% from September 2021. 
  • In April, the nation’s personal savings rate hit 4.4%, hitting its lowest mark since 2008. 

The Juice promised we would keep you updated. And that’s just what we’re about to do. 

Scroll with us, as we update the above-mentioned numbers and throw a couple more equally as scary ones into the mix.

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The Consumer

A Scary Story Keeps Getting Scarier

Key Takeaways:

  • US households set another record for credit card debt in May.  
  • Earnings from major financial services firms, highlighted in our Trackstar data, show increased credit card spending across the board. 
  • As personal savings continue to decline, things could quickly take a turn for the worse for many consumers. 

 

How do things look on debt and savings a few months later?

On Debt

  • In Q2, at Citigroup, US credit card spending volume was up 15% from Q1. 
  • At JPMorgan Chase, it increased 14.7% quarter-over-quarter.
  • At Wells Fargo, the metric was up 15.8% between Q1 and Q2. 
  • And, at BofA, credit card spending was up 17%. 
  • Across all lenders, credit card spending volume popped 20% in Q2, bringing household credit card debt to a record $1.1 trillion and change in May. 
  • Amid this record debt, 40% of people report taking on more debt to help make ends meet.
  • At BofA, home equity loan originations increased 25% between Q1 and Q2. 

The pace of credit card spending has slowed, however it’s still robust and growing at a fast clip. While consumers are keeping up with their credit card bills, The Juice thinks it might just be a matter of time before they run into trouble. 

Here’s why – inflation accounts for most of the spending increases we’re seeing among consumers. We’re seeing more spending on necessities and less in discretionary categories, like electronics and general merchandise, as evidenced by recent 2002 earnings warnings from Best Buy (BBY) and Walmart (WMT). To top it off, personal income isn’t growing as quickly as these increased expenditures on the basics. 

On Savings

  • Personal savings decreased 6.5% between May and June, bringing the nation’s personal savings rate to 5.1%. While that’s up from May’s 5.5% reading, it’s off 41.2% from the end of last year. 
  • A Lending Club survey found that average savings among US consumers dropped from $11,274 in May to $10,757 in June.
  • In June, 58% of people reported concern over how much money they have saved, up from 44% at the same time in 2000.

It’s important to take personal income into account here. It only grew by 0.6% between May and June. 

On the spending side, between May and June, US households spent 1.6% more on goods, 0.8% more on services, and 1.7% more on personal interest payments, such as mortgage interest.  

It doesn’t take a mathematician with a minor in rocket science to conclude that things are tight in more than a few households.

Further Evidence From Mastercard

In Q2, Mastercard (MA) reports that US credit card spending soared 25%. While the company attributed some of this to increased spending on travel, it also offered a mixed picture of the American consumer:

In the U.S., what you are seeing is good strength across both, but a declining trend in terms of the growth rates on the lower income side of things. Affluent spend continues to be very healthy and carries on in a very nice way. 

Visa basically said the same on its recent earnings call. 

The Bottom Line: Here’s the million – or billion, or trillion – dollar question: Will the affluent continue to prop up an economy on the brink of a full-blown recession? 

While nobody knows what the ultimate answer will be, The Juice continues to follow the numbers. With each blurb of data, the picture becomes more clear. 

The affluent remain strong – taking trips and spending money on things they don’t need. Meantime, lower income earners have focused their spending on necessities – out of necessity – and might be increasingly turning to credit cards to do so. 

If the bottom falls out on the relatively poor, all hell doesn’t necessarily have to break loose. Wealthy consumers can – to some extent – carry the economy on their backs, as they appear to be doing in the housing market

If this potentially best case scenario plays out, it could be good for companies such as Visa and Mastercard, meaning they might deserve a place in your long-term portfolio.

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