US Household Finances Show Signs of Trouble

US consumers are finding it increasingly difficult for their incomes to comfortably cover all expenses. This could mean that some will be unable to repay their debts, according to a UBS report.

As many as 44% of consumers said their incomes don’t cover expenses, up from a year ago and an above average reading, according to the report.  In addition, 40% said they had a problem getting a credit card or applying for a student loan default, up 3% from last year.

According to Matthew Mish of UBS, credit trends are worrisome, particularly in unsecured loan markets as the “lower-tier consumer comes under further pressure with lending standards tightening, delinquencies rising, and interest rates near peak levels.”

The report shows that as macroeconomic trends deteriorate, they’re starting to impact the US consumer.  That could be a problem for the economy, as household spending accounts for roughly 70% of GDP growth. As the trade war rages on, it’s seeping into consumer sentiment, which is the lowest it’s been in nine months. In addition, even though the unemployment number has ticked down, wage growth has slowed, putting additional pressure on consumers.

The report showed that consumers are feeling the pressure in applying for loans such as credit cards and home mortgages. A total of 75% said it would be easy to get a home loan, down 6% on the year and the lowest level since 2014.

There are also signs that a tightening credit market is leading consumers to falsify parts of their loan applications. The number of those who say their mortgage applications aren’t completely accurate has increased by 2% to 21%.

While the deteriorating consumer finance trends are troubling, they don’t necessarily point to the end of the consumer credit cycle.  UBS’s consumer health indicator, which includes finance criteria along with other economic data, stands at 0.1 after the third quarter. Before the 2007 and 2001 recessions, the indicator read 0.7 – a higher score generally means lower consumer health.

Still, economic pressure is adding stress for consumers, lower income ones — 69% said they’re stressed because of their expense coverage situation, while 39% of middle income respondents and 26% of high income consumers said the same.

Source: Markets Insider