We do our best to keep our blog posts relevant, informative and timely. Our hope is that our readers glean something useful from each of them and can utilize the information to help manage, control and ultimately collect their bad debts.
We like to keep things as light as we can, but periodically we feel the need to be a little bit wonky and include insightful data which can help provide a perspective on the economic health of the American consumer.
Keeping up to date where the consumer is heading in spending, debt, outlook and savings certainly can help all of us be more vigilant and sensitive to rapidly changing economic conditions. No one likes surprises and so today’s blog will focus on several recent, interesting studies which give additional perspective on where the consumer is today.
We have written before on the remarkable rise in consumer debt following the ‘great recession.’ Fueled by slow and steady growth, and steadily decreasing unemployment, no doubt consumers are feeling much more at ease spending their hard-earned dollars.
Earlier this year the United States surpassed the previous high water mark for consumer debt reached in the third quarter of 2008. The upward, record setting trend continues. According to the Quarterly Report on Household Debt and Credit” by the Federal Reserve Bank of New York, aggregate consumer household debt increased in the second quarter of 2017 by $114 billion. This is the 12th consecutive quarter it has increased and now stands at a whopping $12.84 trillion, $164 billion higher than the peak in 2008.
The good news is that aggregate delinquency rates continue to be flat; 4.8% of debt is in some stage of delinquency. Increasing levels of debt, yes, but so far consumers are generally able to pay their bills.
What does the consumer feel about the financial future? In another report (“Survey of Consumer Expectations”) the New York Fed reports that respondents to their survey expect current economic conditions to remain stable. Summarizing the Fed report, respondents expect inflation to remain relatively unchanged, that median home prices will continue to increase (albeit slightly), that they expect their earnings to increase (also slightly) and unemployment to decrease. In summary, looking out one year “…expectations of the household’s financial situation improved slightly, with 42.3% of respondents expecting to be better off financially, compared to 41.4% in July and 37.4% a year ago.”
So, we are seeing growing, historic and unprecedented levels of personal debt supported by low unemployment, an expectation of personal earnings growth, and a general optimistic perspective on where the economy is headed.
It seems, though, that many consumers continue to spend, but not save, as aggressively as they should. Recently GOBankingRates released their annual survey focusing on how much Americans have in their savings. While in some cases the savings rate is improving, it is still startling to realize that 57 percent of the respondents say they have less than $1,000 in savings. Even more startling is when you drill down a bit the breakout is 15% have something less than $1,000 in savings while 39% have no savings at all (an increase of 5% since 2016).
It is the younger respondents that don’t have savings. Millennials (18-34) are more likely to have no savings while adults over 65 are likely to have more than $10,000 in savings. Why the disparity? The survey suggests that Millennials are in early phases of their careers, so their earnings are commensurate with just starting out, and they are also straddled with enormous student debt load. The Fed surveys tend to confirm this significant anchor.
So, what does all this mean? We are not prophets, gurus or economists. We do, however, keep our fingers on key data so that our valued clients do not get caught off guard when their bad debt increases due to economic shifts and unexpected events. As always, we encourage vigilance and maintaining a healthy grasp on bad debt so it does not get out of hand. We are here to help!
A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.