Employment Up, Wages Down: Impact to Credit Cards

3. June 2018.

You need to take reports of record low employment with a grain of salt. Yes, more people are working, but income is not rising. The shift is particularly sensitive as we see gasoline and other consumer products starting to increase. Most concerning is how the subprime segment will react; depending upon whom you ask, that is 20-40% of the U.S. receivable.

  • Although the labor market added a better-than-expected 223,000 jobs in May, robust wage growth again proved elusive with an increase of just 2.7 percent on an annualized rate.

  • An accumulation of recent data indicates that some Americans are starting to struggle financially, suggesting that workers may have added debt to their household balance sheets because they expected to be earning more by now.

To illustrate their point, the author projects a two-year net value for a single person and married couple; they show the American Express Platinum Sky miles card and the Citi AAdvantage Platinum Select World Mastercard Elite with a $1,014 benefit for Amex and a $1,148 gain for Citi.

  • Delinquencies have ticked up in retail credit cards, which typically have a lower bar for acceptance than general-purpose cards, and in car loans to people with subprime credit scores.

  • The percentage of private-label retail credit card bills unpaid for 60 days or more is 4.65 percent, a seven-year high, according to credit bureau Equifax, and the amount of outstanding auto loan debt unpaid for 60 days or more has risen by more than 5 percent year on year.

An underlying issue is that Americans do not save well. But, for this segment savings can be an unlikely proposition as you fend off household issues such as sick children, worn automobiles, and razor thin discretionary spending budgets.

  • “The reality is that about 40 percent of the U.S. population is living paycheck to paycheck.”

  • “The concern related to the subprime market is that these individuals aren’t as resilient when it comes to surviving a financial shock,” said Bruce McClary, spokesman for the National Foundation for Credit

As we said last year, circle the wagons and fortify. The economy is good yet unsteady.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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