Perhaps you have read the book by Malcolm Gladwell called The Tipping Point. If you have not, it is worth a read. There is a lot in it despite being a pretty short read. In summary, Gladwell points out a number of phenomena that can be traced back to a single, often simple, cause which in turn caused a much larger, and often very drastic, change. I am oversimplifying a bit, but watching world events, financial market behaviors, and ongoing trade wars and political conflicts, I wonder if we are about to reach a significant “Tipping Point” for the American economy and perhaps the world?
I know that is a broad suggestion, and one that is often associated with being a ‘Debbie Downer’ these days. Yes, the economy continues to be robust. Employment is at all-time highs. New job creation continues apace with wages increasing. Consumer sentiment is strong and the economy growing.
Yet I can’t get the enormous amount of consumer debt off my mind. It hangs like a storm cloud over an otherwise pretty rosy financial picture. As we all know, though, roses have thorns and sometimes that light we see at the end of the tunnel turns out to be a freight train!
Once again, we find ourselves at record levels of consumer debt. The New York Federal Reserve just published its report for the second quarter of 2019, and it continues to show that we still seem to have no end to our appetite for personal debt accumulation (read the press release here).
No surprise, we set yet another record!
Some highlights of this quarter’s report are:
- The headline from the Fed is “Total Household Debt Climbs for 20th Straight Quarter…”
- Household debt now stands at a whopping $13.86 trillion.
- This is a $192 billion increase from the first quarter.
- The report points out that “Balances have been steadily rising for five years and in aggregate are now $1.2 trillion higher, in nominal terms, than the previous peak (2008Q3) of $12.68 trillion. Overall household debt is now 24.3% above the 2013Q2 trough.”
- Mortgage related debt stood at $9.4 trillion, a $162 billion increase.
- Non-housing debt increased by $37 billion in the
- New auto loans totaled $155 billion, a $17 billion increase
- Credit card balances totaled $868 billion, a $20 billion increase
- Some good news was that there was an offsetting $8 billion decline in student loan debt.
- Credit card balances in the 90+ day delinquency range rose to 5.2% from 5.0%.
Unfortunately, an increasingly important part of this debt is from so called ‘shadow banking’ institutions and should cause concern as well. Consumers that may otherwise not qualify for credit from traditional sources often turn to these institutions to finance their purchases. That does not help stabilize the debt picture, however.
Granted, as long as employment stays strong and wages continue to rise consumers can continue to finance their debts.
Most recently, however, the bond market began to flash warning signals of a potential recession. Of course, that can force companies to tighten their belts, cause static or negative job and wage growth, which in turn can cause significant financial turmoil. With little savings, or other financial cushions, to protect consumers during hard times (which surely will come) the “Tipping Point” represented by personal debt will continue to shadow us for a long time.
What can you do now to protect your business? First, as we have previously suggested, make sure to review your credit policies and stay on top of your receivables. Make sure that your customer records are as complete and accurate as possible. Finally, make sure to turn your delinquents over as soon as possible for prompt and efficient collections action. We are here to help. Let the professionals at A. Alliance show you how.
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 14 years.