America's Credit Card Nightmare

Crashing Real Wages drain bank accounts and sap the spirits of citizens

The U.S. Consumer is spent. A persistent trend of crashing Real Wages drains bank accounts and saps the spirits of citizens, especially those of modest means.

For 22 straight months now, real incomes plunge. The overall inflation rate, as measured by CPI (which assuredly undercounts actual inflation), has been materially higher than average hourly wage growth for almost all of Biden’s tenure in office. The net effect: Americans work harder to get poorer -- and struggle to simply maintain their standard of living.

New numbers prove this deterioration, from home improvement and hardware giant Home Depot. The big box retailer disappointed investors on Tuesday with a lackluster earnings report and a sluggish outlook into the rest of 2023. The Wall Street Journal reported that “Home Depot customers had been less sensitive than expected to higher prices throughout 2022, but that started to change in the final quarter of the year.”

It took some time, but the bite of inflation eroded the confidence and spending capacity of Home Depot’s customers. Consequently, Home Depot’s CEO cautioned that “we’ve set the stage for a moderating year in 2023.” Investors did not take kindly as they understood that such a “moderating” outlook, in CEO-speak, translates into serious hurdles ahead. HD stock was smashed 7% in a single trading session.

But the consumer troubles extend far beyond just Home Depot. Walmart also delivered a sluggish earnings report, noting that shoppers spend a higher percentage of their dollars on staples like food and cleaning supplies, and markedly less on discretionary items.

At the higher-end of retailing, Nordstrom warned after it  detailed a slumping Christmas shopping season to end 2022. Nordstrom’s stock tanked a whopping -8% to start the holiday-shortened week.

Retailers struggle because customers used the last of their budgetary wiggle room to cope with Biden’s runaway, persistent inflation. The most recent CPI and PPI (Producer Price Index) reads came in shockingly high. Regarding that PPI print last week, research giant Morningstar remarked that “wholesale prices surge again, PPI shows, in sign U.S. inflation is unlikely to ease quickly.”

So, strapped households have reached for credit cards…at a torrid pace.

In fact, the overall growth in credit card indebtedness soared last quarter at the hottest pace in history to reach a staggering $986 Billion in total debt outstanding. As Americans borrow nearly $1 Trillion, the rate on those loans also jumps higher to above 20% -- again, the highest ever.

Consider the consequences of this risky debt, outlined below in a Cortes Chalk Talk. Almost half (46%) of all Americans now carry a credit card balance rather than paying in full. For those borrowers, the average debt load is $7,486 according to NerdWallet.

So, to pay off that balance in full within one year, a borrower must pay $695 per month and not accrue any new debt. For those financially pinched, who can only set aside $200 per month (again assuming no new debt is added), it will take 5 long years to work off that loan. That’s some slog.

Steve Cortes @CortesSteve

A Trillion dollars in Credit Card debt. What does it mean, especially for working class families? Answers here in a new Cortes #ChalkTalk