The most dangerous threat to the U.S. economy is consumers, according to a cover article in Barron’s magazine. Consumers have stopped spending and are feeling more stress over their mounting debt burdens, which is why the economy is not growing as robustly as it has in years past.
Even though the unemployment rate is at a generational low, wage growth has slowed and consumers are more inclined to keep their money in the bank, even if it is not generating any interest. The costs of healthcare, housing, and education are also eating more into our wallets. The share of those three expenses has risen to 36% currently, up from 25% in 1980. Student loan debt, meanwhile, accounts for 11% of household debt now, up from 5% a decade ago.
That stress is starting to leak out onto consumers, who are having a harder time meeting their financial obligations.
For some time now, Stephanie Pomboy of MacroMavens has highlighted the accumulating stress on consumers. “People who save are those who have the wherewithal to save,” she says, “while poorer consumers are borrowing out of distress to fund purchases normally paid for by income.”
The fact that delinquency rates are starting to turn higher “across all segments of the consumer space, despite near record-low interest rates, is a powerful indictment of the strong consumer narrative so widely embraced,” Pomboy says. How can folks have trouble paying their debts with unemployment at 4.3%, mortgage payments low, and net worth at record highs? “One shudders to imagine what delinquencies would look like if rates actually did move up, or—heaven forbid—stocks went down,” she adds.
