Sad, But True: This Economy Is Made Up Of Winners And Losers

For months now, The Juice has not only illustrated the reality of our have and have nots economy. We have highlighted where banks downplay it even as they pump up reserves to guard against bad debt. That is consumers defaulting loans. 

In a recent Juice, we noted the following, starting with some data from Bank of America (BAC):

• 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.

As we continue to develop and keep you updated on this story, there are two angles that concern us. 

One, the lower end consumer appears on the brink of trouble.

Let’s just say, for the sake of argument, the higher end consumer is perfectly fine. We’ll set aside—for a moment—the above BofA data. Because, if we’re wrong about anything here, it might be that we’re overly concerned with the upper echelon consumer. Stress if.

On the low end, things might be unraveling. 

Earlier this month, a whole slew of banks presented at the 2023 Barclays Global Financial Services Conference. These conferences are public, meant primarily for the ears of analysts and investors who really pay attention. So, of course, The Juice listens to these webcasts. 

At this one, several bank execs expressed caution on the low end, summed up best by the head of the 9th most-searched, large cap regional bank stock in Trackstar this month, Fifth Third Bancorp (FITB):

Renters with lower incomes are essentially back to or below pre-pandemic levels of liquidity. There is no buffer left there.

That’s about as straightforward as it gets. 

In the FITBs’ presentation, the bank noted a “Changed credit card strategy, focusing on infootprint prime and super prime transactors.” It also made it a point to tell analysts and investors that homeowners comprise 85% of its portfolio. And that homeowners hold 75% of the banks outstanding auto and credit card debt. 

Other banks also pointed to concerns on the low end and dwindling savings among a broader swath of consumers. 

While FITB made it a point to paint homeowners as better positioned financially to renters, it didn’t distinguish between recent homebuyers and those who bought prior to the increase in mortgage rates and property prices. Which leads us to … 

Two, recent homebuyers could be playing a game of personal financial chicken. 

According to the most recent Black Night Mortgage Monitor data:

• The average mortgage payment—principal and interest only—was $2,306 in July 2023. 
• This is an all-time record, and up 60%, or $871, over the last two years.  
• More than 50% of home purchases in July came with a mortgage payment of more than $2,000 a month. That’s up 18% from two years ago
• Roughly 23% took on a $3,000-plus payment. That’s up 5% from 2021. 

Again, this payment doesn’t include taxes or insurance, let alone maintenance. 

Therefore, you have to wonder if we can associate some of this credit card spending, dwindling savings and generally tight, if not precarious personal finance to people dealing with house rich, cash poor situations. If so, we have even more reason to worry. 

The Bottom Line: The data really speaks for itself. Ultimately, it’s a slow burn, which is why this story doesn’t make headlines much in the popular and financial media. The story takes some time to unfold. But, make no mistake, it’s unfolding. 

Credit card debt can only go up and savings can only go down for so long. At some point, something’s gotta give. And, if it’s gives in a housing environment that’s anything but affordable, things could get ugly. Not 2008 ugly, just different and ugly nevertheless.

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