Storm clouds are gathering on the economic horizon: Default rates for car loans, student loans, and high yield corporate bonds have been creeping higher*.
Adding fuel to the fire was bad news from several of the largest credit card issuers. They have reported year-over-year declines in their net income. Management blamed larger than expected credit card losses for the dismal earnings report*.
Lenders’ profit margins largely rely on two factors: Low cost of capital and minimizing losses on their loans.
According to the US Department of Commerce, the US economy grew at a miniscule rate of 0.70% in the first quarter of 2017, which is well below the 4th quarter 2016 rate of 2.10%. The report attributes this poor performance to a large drop in consumer spending. American consumers are spending like we are already in a recession**.
These are indeed two troubling signs for the US economy. Keep a close eye on both of these items.
* Daily Wealth. April 29, 2017
** Stansberry Digest. May 1, 2017
These are the opinions of Justin Brill and not necessarily those of Cambridge, are for informational purposes only, and should not be construed as individualized investment advice.
