Credit-Card Delinquency Rates Rise, Particularly Among The Young (#GotBitcoin?)
Interest on credit cards also rising, a New York Fed report adds. Credit-Card Delinquency Rates Rise, Particularly Among The Young (#GotBitcoin?)
Credit-card delinquency rates are rising, particularly among young people who are now more likely to have a credit card than a decade ago, according to a report Tuesday by the Federal Reserve Bank of New York.
About 8.1% of credit-card balances held by people aged 18 to 29 were delinquent by 90 days or more in the first quarter of the year, the highest share since the first quarter of 2011, the bank said. Delinquency rates among older people are slowly rising as well, but remain below the rate for the youngest borrowers.
Those delinquencies risk hurting younger borrowers’ credit scores and could make it more difficult for them to take out mortgages or small-business loans in the future.
Interest rates on those credit cards are also moving up, further squeezing struggling borrowers. Rates on credit-card accounts where interest is charged hit 16.91% in the first quarter of the year, according to Fed data, the highest rate since at least 1994.
A 2009 law made it more difficult for credit-card companies to recruit college students, prompting a decline in the number of young people with cards. That trend has reversed in recent years. Today, roughly 52% of those in their 20s have credit cards, according to the New York Fed report, up from 41% in 2012.
Delinquency rates among young people, which rose to nearly 14% in the third quarter of 2008, fell sharply following passage of the law but started moving up in 2013—roughly when credit standards started loosening, according to the New York Fed.
“The rate at which credit card balances become delinquent has been rising and that has coincided with an increase in younger borrowers entering the credit card market,” said Andrew Haughwout, senior vice president at the New York Fed in a post published by the bank.
On Thursday, Democratic presidential candidate Bernie Sanders and Rep. Alexandria Ocasio-Cortez (D, N.Y.) introduced legislation capping credit-card interest rates at 15%. The bill has little chance of passage in the Republican-held Senate. Another contender for the Democratic nomination, Massachusetts senator Elizabeth Warren, wants to limit credit-card rates to the highest rate allowed under the laws of the state where the borrower lives.
Despite the rising delinquency rate, only 14,000 people aged 18-29 filed for bankruptcy in the first quarter of the year, the smallest number on record going back to 2003.
Overall credit-card balances totaled $850 billion in the first quarter, the New York Fed said, slightly down from the fourth quarter of 2018 as consumers paid off holiday spending. There were roughly 482.7 million open credit card accounts in the first quarter, the most since the third quarter of 2008.
More Troubling Signs..
U.S. Industrial Production Dropped In April
Manufacturing output, the biggest component of industrial production, fell 0.5% in April from a month earlier.
The U.S. manufacturing sector faltered again in April, fresh evidence that a slowing global economy and trade frictions are squeezing part of the U.S. economy.
Manufacturing output, the biggest component of industrial production, fell 0.5% in April from a month earlier, the Federal Reserve said Wednesday. That helped tug down broader output across factories, mines and utilities last month.
So-called industrial production was down 0.5% in April, well below expectations among economists surveyed by The Wall Street Journal for a flat reading.
In April, production of long-lasting goods, such as machinery, electrical appliances and motor vehicles, decreased sharply.
The longer-term trend in manufacturing production shows the sector is pulling back after a strong 2018. In the first three months of 2019, manufacturing output declined by about 0.4% a month, on average. From a year earlier, manufacturing production fell 0.2% in April.
Though manufacturing accounts for a small share of gross domestic product, the sector is highly sensitive to shifts in global demand, making it a bellwether for the broader U.S. economy.
Manufacturing appears to be losing its footing domestically as goods-producing segments overseas flash signs of weakness.
Global manufacturing conditions appeared lackluster in April, according to JPMorgan’s global manufacturing purchasing index, which measures manufacturing conditions based on surveys of companies. The Eurozone PMI contracted for the third consecutive month, pulled down the German manufacturing sector, a persistent source of weakness abroad.
Job growth in the global manufacturing segment was the weakest in about 2.5 years, according to JPMorgan.
“International trade flows remain a significant drag on the manufacturing sector,” said David Hensley, a JPMorgan director.
Wednesday’s report showed manufacturing capacity use, a measure of slack, decreased 0.5 percentage point to 75.7% last month. More broadly, industrial capacity utilization declined to 77.9% in April, which compares with economists’ expectations for capacity use of 78.7% in April.
Output in the volatile mining sector climbed 1.6% in April. Utility output contracted by 3.5% from the prior month.
The “Good Times” For Bank Depositors May Not Last Much Longer
Don’t Get Too Used To Higher Bank Deposit Rates
Some deposit rates have slowed their increases or already declined.
Investors increasingly think the Federal Reserve is on course to cut interest rates at least once this year. That makes it likely banks could start to reverse course on deposit rates, which while still low by historical standards have climbed over the past two years.
Growth in payouts to savers has already begun to stall in some deposit categories. The national average rate for a one-year certificate of deposit, for example, has risen just 0.09 percentage point, to 1.01%, this year through May, according to Bankrate.com. In 2018, that same rate more than doubled.
The average rate on a five-year CD fell by 0.05 percentage point in May from April, the Bankrate.com data showed.
Meanwhile, a recent report from Piper Jaffray, which looked at a range of deposit products from about 120 banks, showed that more products’ deposit rates were falling than rising. Those banks lowered the rates they pay on deposits for 87 different products in the first quarter compared with 18 products for the same quarter a year ago, based on data from DepositAccounts.com. They raised rates on 149 different products in the quarter, compared with 180 a year earlier.
The result: An end could be at hand for the somewhat brief period, starting around two years ago, when depositors finally began earning more than desultory interest on their money. Paltry payouts until then were the result of the Fed’s near-zero interest-rate policies, enacted in the wake of the financial crisis.
While big banks generally have kept payouts low, savers over the past year or so have been able to tap 2%-plus yields for savings accounts at online banks and certificate of deposit rates that in some cases topped 3%, even for shorter maturities. That occurred as the Fed between late 2015 and late 2018 increased short-term rates nine times—bringing the fed-funds rate to a level of between 2.25% and 2.5%—and the yield on the 10-year U.S. Treasury to around 3.25% last fall.
Since then, though, the Fed has put future rate increases on hold and longer-term yields have steadily declined in 2019; the yield on the 10-year Treasury has fallen to around 2.4%.
Adding to the possibility deposit rates will start to decline, especially if the Fed cuts rates: Bank profits are likely to come under pressure from an inversion of the yield curve, or the difference between short- and long-term rates. Banks can offset that pressure by controlling their deposit costs, Piper Jaffray managing director Matthew Breese said.
“If you’re borrowing, you’re excited,” David Turner, Regions Financial Corp. finance chief, said in a recent interview. “If you’re a saver…you’re less excited.”
Banks have said they are already under less pressure to pay up for deposits.
On his bank’s first-quarter earnings call, M&T Bank Corp. finance chief Darren King said the movement of deposit rates slowed in the first quarter given “that there was a little bit less competitive pressure on deposit pricing in any given category.”
Banks also don’t feel under pressure to keep deposits flowing in at a brisk pace because loan growth isn’t particularly strong, Mr. King said in an interview.
Some in the industry also say depositors are conditioned to superlow payouts from postcrisis years when cash earned next to nothing. That makes them less likely to shop around for a better rate if deposit payouts start rising or even fall.
“I think customers are less in tune with the ability to get a return on their deposits,” Kevin Barker, senior research analyst for Piper Jaffray, said.
Ultimately, what banks do with deposit rates will depend in large part on how monetary policy plays out over the remainder of the year. As of May 17, fed-funds futures showed the market pricing in about a 72% chance of at least one interest-rate cut by the end of 2019, according to CME Group .
At the same time, a small but growing number of investors expect the Fed could cut rates more than once in 2019, while the probability of the central bank standing pat on rates has steadily declined this spring. Credit-Card Delinquency Rates Rise Credit-Card Delinquency Rates Rise Credit-Card Delinquency Rates Rise Credit-Card Delinquency Rates Rise