As Some Banks ‘Ignore’ It, The Writing On The Wall Keeps Getting Worse

About once a month, The Juice updates the numbers on consumer credit card spending. We like to compare federal government and big bank data, in part, because the big banks tend to paint the rosier picture.

For example, Bank of America’s (BAC) headline to their most recent report on consumer spending and credit: Not such a cruel summer. While we’re a sucker for a good Taylor Swift play-on-words, we don’t love the watering down of reality. 

Case in point: BofA just loves to compare everything to prior to the pandemic. For how long will they do this? For how long will this be a valid, let alone useful comparison? 

That pandemic changed the world. No doubt. And it changed the way we live, work, spend money and allocate our leisure time. The recent uptick in cases reaffirms we’ll be living with this virus for a while. However, you can’t blow off concerns about increases in key personal financial and other micro and macroeconomic metrics by saying it’s not as bad as it was prior to the pandemic. 

Just as you can’t compare the present housing crisis to 2008, you can’t take 2019 and act as if it’s a real comparison to 2023 when the circumstances surrounding 2019 were completely different from the ones we’re dealing with today. Like universal mask mandates that flew for a while; it doesn’t fly anymore. 

So when Bank of America writes this: 

Overall, consumers still have ‘dry powder’ to support their spending. Credit card utilization rates have risen, but remain below pre-pandemic levels. Average credit card balances are above 2019 levels for lower income households, but their wage growth has also been strong.

And, in its next breath shows us this: 

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We have to wonder if they’re being a tad too optimistic. Could it be that a mega bank with teams of economists and other bean counters can’t see the writing on the wall? Writing on the wall made more clear by – ironically – by government data. Finally, an example where federal bureaucracy illustrates a more clear and potentially more accurate picture than corporate America. 

The two exhibits from BofA show that: 

• The share of credit card spending among consumers is increasing, putting it – all together now – on par with the 2019 level and about to pass where it was in 2022. 
• Credit utilization rates are climbing across the board, as pandemic savings continues to dwindle. 

What’s even more concerning is that we’re seeing these increases from Bank of America. A bank that’s not necessarily dealing with consumers who have weak credit profiles. 

If you look at the bigger picture the federal government regularly releases, you see the continuation of trends The Juice has been writing about for roughly 18 months now. As you know, we’re big on reading and following the writing on the wall. 

According to the Fed, credit card debt increased by roughly $9.7 billion in July to hit $1.27 trillion, another all-time high. 

To be fair, if you look at JPMorgan Chase’s (JPM) most recent report on the condition of the consumer, you see some welcome real talk:

By our measures, pandemic excess savings has dwindled to $0.2 trillion from its peak of $2.1 trillion, leading consumers to draw on revolving credit to finance their spending habits. Revolving credit as a share of disposable income may not look too worrying yet (at 6.3% in June compared to 6.5% pre-pandemic), but delinquencies for credit cards and auto loans are starting to rise. Flows into early delinquency status for credit cards rose to their highest level in 10 years in the second quarter and flows into serious delinquency (90+ days) are picking up as well. 

The percentage of 30+ delinquent balances on auto and credit card loans hit 7.3% and 7.2%, respectively, in this JPM data, released this past Monday. 

Writing meet wall. Deja vu all over again. 

The Bottom Line: You know how it goes. When people face money trouble, they start making tough decisions. They stop paying the bills that matter least, relatively speaking. 

Cut the gym membership and streaming subscriptions. If things get really bad and you have to choose between food and making the credit payment, you miss the credit card payment. From there, you need wheels to get around. However, if paying for your car means not making the rent or mortgage payment, you miss the car payment. 

While some U.S. households continue to thrive, the writing on the wall makes it clear. A large swath of people fit the profile we just illustrated. 

As we mentioned recently, the big banks, including BofA, continue to build reserves to guard against bad loans. They’re going to be okay. Some of their customers, not so much. The Juice remains concerned. And, of course, we’ll continue to keep you updated with data and analysis that tells it like it is, or at least how we see it. So please tell a friend to subscribe to The Juice as well as one of our other newsletters on all things money, economy and investing.

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