We’ve seen the reports of rising consumer debt, and a new one confirms one aspect of our Cash-strapped Consumer investing theme —  “wage growth has been stagnant for five years for a large segment of the working populace — and that using cards is the result of the simple fact that people have to use them to cover their basic living expenses.“ 

Sums it up in a nutshell, don’t you think?

The downside of higher debt levels, especially in a rising rate environment, is more income goes to servicing that debt shrinking disposable income in the process. Less disposable income means either more borrowing or less spending – one is a bandage that will only drive interest payments higher later, while the other is a headwind to consumer spending.

No matter how you slice it, the eventual end result is the same. We at Tematica see this as positive for those companies that embrace our Cash-strapped Consumer and Cashless Consumption themes even though this is a headwind to domestic economic growth.

The New York Fed’s latest report on household debt tells a very sharp story about the U.S. consumer’s relationship with debt.

Consumers in the U.S. have racked up more debt than ever — $12.73 trillion as of the end of Q1 2017, nudging past the $12.68 trillion back in Q3 2008.

Credit card debt accounts for roughly one trillion of that number.“Where did the growth [in credit card debt] come from?” Schwartz asked rhetorically.  “Is it because card companies reached further down-market to pull more near- and sub-prime credit users into the market?

Or are we seeing more growth from the more affluent consumers who have higher [credit] scores and the ability to spend more?”

Answering that question, he noted, is quite complicated ten years after the recession,because the answer is actually both — and it depends on what tranches of borrowers one looks at. The reality he said, is that wage growth has been stagnant for five years for a large segment of the working populace — and that using cards is the result of the simple fact that people have to use them to cover their basic living expenses.“

People have been using credit just to live their lives,” Schwartz said. “They aren’t putting $10,000 on their cards to take a fancy vacation — people have living expenses, and that is what is getting put on cards. I think we have seen a lot of that happen.”

Source: Post Great Recession, Consumer Debt Is Evolving | PYMNTS.com