There are times when the USA economy surrenders up data that appears completely at odds with (and at the end of) its own ‘twilight-zone’ spectrum. We learned on Monday that USA credit had risen by an annual rate of 4.4%, the bulk of the rise due to an increase in the uptake of student debt and car credit, or “auto finance” as our American cousins refer to it…
Consumer credit in the USA rose $10.4 billion in July to a seasonally adjusted $2.85 trillion, posting an annual growth rate of 4.4%, the Federal Reserve reported on Monday. Revolving credit, mostly made up of credit card loans, fell for a second month, declining at an annual rate of 2.6% in July, compared with a drop of 5.2% in June. Meanwhile, non-revolving credit, which covers loans for education and cars, among other areas, rose at an annual rate of 7.4% in July, down from 9.5% in June. Non-revolving credit has grown every month since August 2011.
So USA consumers are apparently paying down credit card debt, taking out record student loans and displaying absolutely no fear regarding auto finance at up to nine years per vehicle. Is there any pattern that we can deduce from this polarised consumer behaviour? Well firstly it’s an assumption to claim that credit card debt is actually being paid down, quite simply it may be reducing as it’s become more difficult to obtain given that it’s unsecured debt. Then we move on to consider the student loans and auto loans and a pattern is developing; desperation…
USA consumers are taking credit where it’s available for the specific purposes necessary. They’re taking student debt in record numbers as they’ve very little in the way of savings. They’re taking out car finance (over record periods) as affordability is an issue and they have very little in the way of deposits to lower the monthly cost.
USA Savings Rates Plunge
Personal Savings in the United States remained unchanged at 4.40 percent in July of 2013 from 4.40 percent in June of 2013. The United States Personal Saving Rate averaged 6.85 Percent from 1959 until 2013, reaching an all time high of 14.60 Percent in May of 1975 and a record low of 0.80 Percent in April of 2005.
During the early months of 2013 savings rates reached worrying lows in the USA, a series beginning January printed at; 2.3, 2.7, 2.5 and 3 percent, a close on negligible savings rate that offers very little in the way of deposit when looking to take on board car finance, or assist off-spring with their university (college) fees, or to take out a new home-buyer mortgage. In comparison personal savings in Japan decreased to 22.80 percent in July of 2013. Japan Workers Savings averaged 11.55 Percent from 1970 until 2013, reaching an all time high of 48.30 Percent in December of 1997.
Bank Of America And JPM To Shed Thousands Of Mortgage Jobs Due To Rate Rises
On Monday Bank Of America announced that it’s closing sixteen mortgage offices and losing up to 2,100 jobs. Approx 1,500 of the job losses is in the division that processes mortgage applications. Mortgage lenders are cutting jobs as rates rise. Wells Fargo & Co plans 2,300 cuts, whilst JPMorgan may cut 15,000. BOA ‘s pending home sales mortgages fell by 5% in a single month last month, once again suggesting that the house price bubble came and went in a very narrow window that closed as quickly as it opened.
The cost of a 30 year mortgage in the USA has risen to 4.57% last month from 3.35% in May. What’s more concerning is that refinancing made up 70% of the mortgage market in the first half of 2013.
So what’s the link between low levels of savings, credit card debt, auto finance, student loans and mortgages? The refinancing of mortgage debt is possibly the best illustration of the current USA consumer psyche when combined with the incredibly low historical savings rates. Americans are desperate for credit; immediately their houses are appraised at a higher value and they pile into increased debt through re-financing in order to fund lifestyles that appear unaffordable as illustrated by the low savings rates.
Sometimes as analysts it pays to dig a little deeper below the surface headlines that we’re delivered in an attempt to discover a truth. And the truth appears to be that in the USA the overall economic landscape and backdrop points to an incredibly fragile recovery, if recovery is in fact the right description.