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US credit card delinquencies are rising, a potentially ominous sign for the economy.
Americans now have more credit card debt than before the financial crisis — over $1 trillion.
US - Household - Balance - Sheets - Recession
US household balance sheets are better positioned than before the recession, but "new delinquencies could be early sign of stress" according to Capital Economics.
Americans are having increasing trouble paying their credit card bills, a potentially ominous sign for an economy reliant on consumer spending for some two-thirds overall activity.
US - Credit - Card - Debt - Record
US credit card debt recently surged to new record highs, surpassing peaks seen before the 2008 financial crisis. Several large US banks and credit card companies reported a rise in credit card delinquency rates for August, the second consecutive monthly rise.
Michael Pearce, economist at Capital Economics, does not see the spike as a major threat to the growth outlook for now. But given the prospect of higher interest rates from the Federal Reserve next year, it could become a growing problem.
Increase - Delinquencies - Sign - Stress - Household
"The increase in new delinquencies may be an early sign of stress in household finances," he wrote in a note sent out to clients on Friday.
"After all, credit card lending is one of the most expensive forms of borrowing, and missing a credit card payment doesn’t carry the same risk of repossession as falling behind on mortgage or car payments might," Pearce added. "The rise in new delinquencies is difficult to square with the continued strength of the labor market."
Fed - Costs - Year - Balance - Sheet
The Fed expects to continue raising borrowing costs next year and winding down its large balance sheet as the US unemployment rate hovers nears historic lows — despite an inflation rate that continues to undershoot the central bank’s 2% target.
Still, Pearce does not see any substantial short-term economic or financial...
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