Consumer debit ratios for the second-quarter plummeted to levels not seen in more than 40 years. The Financial Obligations Ration (FOR) dropped 53 basis points (bps) over the past two years, while the Debt Service Ratio (DSR) has declined 27 bps since the second-quarter of 2017, based on figures released by the Federal Reserve.
The sharp decline in both consumer debt metrics was accompanied by significant revisions for each quarter over the past two years. The seasonally-adjusted FOR for the prior quarter was adjusted downward by 31 bps and the seasonally-adjusted DSR was adjusted downward by 20 bps, according to analysis by RAM Research.
The FOR posted at 15.03% for the second-quarter (2Q/19), compared to a revised 15.07% in the prior quarter, and revised 15.12% for 2Q/18. The DSR reported at 9.69% for 2Q/19, compared to a revised 9.71% for 1Q/19, and a revised 9.70% for the second-quarter of last year, according to figures collected by CardData.
Consumer Debt Ratio Analysis
The FOR peaked at 18.13% in the fourth-quarter of 2007. Since peaking at 13.22% in the fourth-quarter of 2007, the beginning of the Great Recession, the DSR has declined steadily since, dipping into single digits for the first time in the fourth quarter of 2012 (9.83%).
The household DSR is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. The FOR is a broader measure than the DSR. It includes rent payments on tenant-occupied property, auto lease payments, homeowners’ insurance, and property tax payments.
The steady decline in both ratios correlates with the overall economy and impacted by low unemployment, low interest rates, and a bullish stock market. However, the consensus is the economy is on a recessionary path and the stock market is turning bearish, in the wake of data released over the past six months, notes Robert McKinley, pro bono Senior Analyst for CardFlash, CardData and CardTrak. McKinley believes a recession began in July for Main Street, and predicted a bull market was likely to hit Wall Street beginning in the fourth-quarter.
Total Consumer Revolving Debt
U.S. revolving credit, (97% credit card debt), increased at an annual rate of 11.2%, compared to one-year ago, and follows a revised 0.2% YOY (year-on-year) decline in June and a revised 8.3% YOY and 7.6% YOY increase in May and April, respectively, according to CardData.
U.S. revolving consumer credit stood at $1081.2 billion at the end of July, compared to a revised $1071.2 billion for June, a revised $1071.4 billion for May, and a revised $1064.1 billion for April, according to the latest figures released by the Federal Reserve earlier this month. At the end of 2018, Americans owed a revised $1053.5 billion in revolving credit.
On a quarterly basis, U. S. consumer revolving credit increased a revised 5.2% YOY in the second-quarter, compared to a revised 1.5% YOY in the first-quarter, and a revised 3.2% in the second-quarter of last year. U.S. revolving consumer credit is now growing at 4.12% CAGR (compound annual growth rate) since the second-quarter of 2015, based on analysis by RAM Research.
Consumer Credit Card Debt
Second-quarter credit card loan growth, among the Top 4 U.S. issuers, grew a paltry 2.6% year-on-year (YOY), compared to 3.4% YOY in the prior quarter, and compared to 4.8% YOY one-year ago.
Among the nation’s Top 4 credit card issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], and Citibank [C]), the annual growth rate for U.S. end-of-period (EOP) credit card outstandings in the second-quarter (2Q/19) is the lowest in the more than five years. For the second-quarter U.S. credit card EOP outstandings, among the Top 4 posted at $440.2 billion, compared to $431.6 billion for 1Q/19, and $428.9 billion for 2Q/18. For the second-quarter of 2015, the Top 4 reported $357.9 billion in U.S. EOP credit card outstandings, according to figures collected by CardData.
The YOY gain in U.S. EOP outstandings for the second-quarter of 2.6%, compares to a YOY increase of 4.8% in 2Q/18, 6.1% in 2Q/17, and 7.8% in 2Q/16. U.S. EOP outstandings for the Top 4 U.S. issuers is now growing at a 5.31% compound annual growth rate (CAGR), according to RAM Research.
Final FOR/DSR Data Notes
Robert McKinley, who also tracks the payment industry via Bankcenter, CardBuzz, PYRTS and PYVNTS, says in his 34 years of analyzing FOR and DSR data, this is the first time he recalls the significant revisions to all the Federal Reserve figures for the prior two years.
U.S. Consumer Financial Obligations Ratio
U.S. Consumer Debt Service Ratio
U.S. Revolving Consumer Credit
2012: $845.2 billion
2013: $855.6 billion
2014: $888.0 billion
2015: $906.7 billion
2016: $968.0 billion
2017: $1022.1 billion
2018: $1053.5 billion
2019: $1081.2 billion (as of July)