Job growth slows in April 2025

The Bureau of Labor Statistics reported that the U.S. economy added 177,000 jobs last month. That was down a little from March’s 185,000 new jobs. Also, the originally released figures for February and March were revised downward by a combined 58,000 jobs. Healthcare remained the biggest area of job growth, with 51,000 new jobs in April. The biggest decline was in government employment, which lost 9,000 jobs during the month. The report also noted that people on paid leave or still receiving severance pay are counted as employed, so the full effect of government job cuts may be felt later on.

Economy contracts in Q1 for first time in three years

The Gross Domestic Product (GDP) of the United States contracted at an inflation-adjusted annual rate of 0.3% in the first quarter of 2025. It was the first negative quarter for GDP in three years, and follows a 2.4% growth rate in the fourth quarter of 2024. The first-quarter GDP number declined despite being supported by a strong quarter for inventory investment, as companies sought to build up supplies in advance of tariffs. See GDP report at BEA.gov.

Fed eases up on bank crypto rules

The Federal Reserve has withdrawn previous instructions to banks about investments in crypto-assets. That guidance permitted banks to invest in crypto but warned them about the special risks of those investments. It also required banks to inform the Fed in advance of planned crypto activities. The risks the Fed had previously cautioned banks about included fraud, lack of clear ownership documentation, inaccurate representations by crypto-asset companies, and significant price volatility. The withdrawal of this guidance in April 2025 shows a new willingness to allow banks to learn about these risks by experiencing them. See announcement at FederalReserve.gov.

Moody’s downgrades D.C. credit rating

Moody’s Ratings has lowered the credit rating of the District of Columbia. The move is likely to cost the city more in interest on its municipal debt. The Moody’s report said they lowered the rating because federal government layoffs and budget cuts would erode the financial stability of the District over the next four years. See article at Yahoo.com.

Tariff impact expected to hit poorest households hardest

A new analysis by the Institute on Taxation and Economic Policy (ITEP), released in April 2025, shows that the burden from new tariffs would fall more than three times more heavily on poor households than on rich ones. At least some of the cost of tariffs is expected to be passed along to consumers. ITEP estimates that this will cost households in the lowest 20% of incomes an extra 6.2% of their income. Households in the lowest 20% are those earning less than $29,000 a year. Meanwhile, households in the top 1% are expected to pay an additional 1.7% of income due to tariffs. The top 1% are households earning at least $915,000 a year. See article at CNBC.com.

Home price growth slows in early 2025

The S&P Corelogic Case-Shiller National Home Price Index rose by 0.3% in February 2025. Over the past 12 months, the index is up by 3.9%. That’s down slightly from the 4.1% 12-month gain through January. Most of the gain occurred during the first half of that period, as price rises have slowed in recent months. Northern cities fared well over the past year, with New York showing the largest 12-month gain at 7.7%. This was followed by Chicago at 7.0% and Cleveland at 6.6%. At the other end of the scale, Tampa had the worst home price performance with a 1.5% decline over the past year. See home price index announcement at SPGlobal.com.

Mortgage rates dip again in late April 2025

Mortgage rates dipped slightly for a second consecutive week. Thirty-year rates fell by 5 basis points, to 6.76%. Fifteen-year rates fell by 2 basis points, to 5.92%. The latest changes leave both rates slightly below where they were at the start of 2025, but well above the low point reached at the end of last September. For example, 30-year rates are 9 basis points below where they were at the end of December, but 68 basis points above their level at the end of September. See rate details at FreddieMac.com.

Construction spending falls in March 2025

Total U.S. construction spending slowed by 0.5% in the month of March, compared to February’s level. Residential construction experienced a similar decline, slowing by 0.4% in March. However, both total and residential construction are up by 2.8% from March of last year. See details at Census.gov.

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Job growth strong in December 2024

The US economy added 256,000 jobs in December. This completed the fourth year in a row in which employment grew every month. In total, the economy added 2.2 million jobs in 2024. December’s job growth exceed the monthly average for 2024 of 186,000. Healthcare and retail were leading areas of job growth in December. See details at BLS.gov.

Revolving credit declined in November 2024

Revolving credit owed declined at a seasonally adjusted annual pace of 12% in November. November is usually one of the heaviest months for the use of revolving credit. The way seasonal adjustment works, the actual amount of revolving credit outstanding increased during November, but by much less than would typically be expected at the start of the holiday shopping season. The vast majority of revolving credit is credit card balances. Consumers didn’t completely turn their backs on using credit during November, as nonrevolving credit rose at a seasonally adjusted annual rate of 2.0%. See details at FederalReserve.gov.

Bankers sue government to stop overdraft fee cap

The American Bankers Association (ABA) is suing the Consumer Financial Protection Bureau (CFPB) to block the CFPB’s recently announced limit on overdraft fees. The fee cap was issued on the grounds that overdraft fees are a form of finance charges for credit issued by banks to consumers. The ABA argues that overdrafts are not credit and should not be treated as finance charges. The lawsuit also argues that the CFPB overstepped its legal authority in issuing the fee cap. See the news release at ABA.com.

CFPB makes final push to sideline medical debt

The CFPB has announced a new rule that would exclude information about medical debt from credit reports. This would potentially affect 15 million consumers with $49 billion in unpaid medical debt. However, the measure wouldn’t absolve consumers from that debt. They would still be legally obligated to pay it, but it would not appear on their credit reports. Critics of the move say it could restrict lending because it would make credit information less reliable. In any case, it’s questionable whether the measure will survive when the new presidential administration comes in. See report at Reuters.com.

Mortgage rates continue to trend upward

30-year mortgage rates continued to surge toward 7%, rising by two basis points last week to 6.93%. This was the fourth consecutive week mortgage rates rose, with 30-year rates rising by 33 basis points. Overall, 30-year rates are up by 85 basis points since bottoming out at the end of September 2024 and are 27 basis points higher than a year ago. 15-year rates also rose for a fourth straight week, increasing by one basis point to reach 6.14%. See mortgage rate detail at FreddieMac.com.

Mortgage credit standards loosened in December 2024

Mortgage credit availability rose by 0.7% in December, reaching 96.6 on the Mortgage Credit Availability Index (MCAI), per the Mortgage Bankers Association. A higher index reflects looser credit standards. The Conventional MCAI increased by 1.3%, driven by more adjustable-rate mortgage (ARM) and cash-out refinance options for borrowers with strong credit, while the Government MCAI remained unchanged. The Jumbo MCAI climbed 2.3% to its highest level since August 2024, offsetting a 0.7% drop in the Conforming MCAI. Joel Kan, MBA’s Deputy Chief Economist, attributed the rebound in conventional credit to these expanded offerings for creditworthy borrowers. See news release at MBA.org.

Bond prices plunge as interest rates rise

Yields on bonds around the globe have been falling sharply as inflation concerns have mounted. The rate on 10-year US bonds rose to 4.7%, its highest since April 2024. Bonds are traditionally a haven in uncertain times, but not when the uncertainty involves a return of inflation. Experts say investors are selling bonds out of concern that plans for new trade tariffs and tax cuts could lead to higher inflation and an expanding deficit. Both would drive down the value of US bonds. This would affect consumers because loan rates, such as on mortgages, often respond more closely to moves in the bond market than to Fed rate changes. See article at Reuters.com.

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Dockworker strike on hold

The International Longshoremen’s Association and port operators reached a tentative deal to end a strike involving tens of thousands of dockworkers across 36 ports in the eastern United States. Though the strike was just three days old, it was already causing a backlog of anchored ships waiting to be unloaded. This threatened to cause supply chain disruptions like those resulting from the pandemic, which contributed heavily to the inflationary spike in 2022. Still, the settlement may have inflationary consequences, calling for a 62% wage increase over six years. Also, it’s important to note the resolution may only be temporary, as some remaining issues were tabled until the current contract expires next January 15. See article at Reuters.com.

45 months of consecutive job growth

The US economy added 254,000 jobs in September 2024, exceeding the average monthly gain of 203,000 over the past year. Adding to the good news is that job growth estimates for July and August were revised upward by a combined 72,000 jobs. The US has now enjoyed 45 consecutive months of job growth. See the Employment Situation report at BLS.gov.

Bank of America suffers widespread outages

Many Bank of America customers reported having difficulty accessing their account information online. Some reported outages, while others could access their accounts but found specific problems. These included inaccurate balances and some features of the app/website not functioning. The complaints spiked shortly after 1 pm on October 2 and fell off sharply as the bank worked to resolve the problem. See article at UPI.com.

Hurricane Helene estimated to be costliest storm ever

As experts assess the damage done by Hurricane Helene, the estimated price tag keeps rising. AccuWeather now estimates the economic impact could be between $145 billion and $160 billion. In addition to the direct effect on several states along the path of the hurricane, the damage could disrupt the national economy. The extended interruptions of agriculture, manufacturing and transportation in the Southeast are likely to be a drag on US Gross Domestic Product. In addition, the shortages resulting from those interruptions may snarl supply chains, resulting in inflationary scarcity of some items. See article at Newsweek.com.

Pause in mortgage rates downward trend

30-year mortgage rates rose last week for the first time since mid-August. However, the increase was only slight. 30-year rates rose by 0.04% to 6.12%. To put that in perspective, 30-year rates have fallen by a total of 0.49% since 2024 began and by a total of 1.67% since peaking in late October of 2023. 15-year rates also rose last week, climbing 0.09% to 5.25%. See rate details at FreddieMac.com.

Employee length of tenure declines

A new survey of employee tenure found that Americans are not staying with their employers for as long as they did in the past. The average tenure of American employees fell below four years for the first time since 2002. The current tenure of 3.9 years is down from the previous survey figure of 4.1 years in 2022 (the survey is conducted every two years). Men tend to stay with their employers longer than women. Men now have an average tenure of 4.2 years, compared to 3.6 years for women. Both figures are down in the most recent survey. See news release at BLS.gov.

Pending home sales rose in August 2024

Pending home sales were up by 0.6% in August. Despite this short-term improvement, pending home sales were still down by 3% from a year earlier. The Midwest, South and West regions all showed higher pending home sales last month, while the Northeast suffered a 4.6% decline. The West was the only region with increased pending home sales over the past 12 months. Pending home sales are considered a leading indicator of actual home sales, as they are measured when purchase contracts are signed as opposed to when the transactions finally close. See details at NAR.Realtor.

Job openings rose in August 2024

The total number of job openings in the US rose to 8.040 million in August. That’s up from 7.711 million in July but far fewer than the 9.358 million in August 2023. Job turnover has slowed to 4.997 million total separations in August. That’s down from 5.314 million in July to 5.609 million in August 2023. Total separations include people who left their jobs voluntarily and those who were fired. More moderate numbers of job openings and separations may represent more stability for the US job market. The ratio of unemployed persons to job openings was 0.9 in August. That’s more in line with pre-pandemic levels than the low of 0.5 reached in 2022 and early 2023. Previously, the unusually low ratio of job-seekers to jobs contributed to the flare-up of inflation in 2022. See news release at BLS.gov.

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1. FTC report highlights shifting challenge of impersonation scams
2. Millennials become largest share of home buyers
3. CFPB identifies financial risks in video games
4. Bankruptcies approaching crisis levels
5. VantageScore usage rises quickly
6. Credit issues lead consumer financial complaints
7. Job growth keeps a full head of steam

FTC report highlights shifting challenge of impersonation scams

The Federal Trade Commission put out a bulletin warning consumers about how impersonation scams are evolving. In 2023, the FTC received 330,000 reports of scams imitating businesses and 160,000 reports of those imitating government representatives. Losses to these scams totaled over $1.1 billion last year, which has tripled since 2020. These scams have increased in complexity, such that a fake representative of one organization might transfer you to other imposters pretending to be from banks or government agencies. The top five types of impersonation scams are 1) fake security alerts, 2) phony subscription renewals, 3) false giveaways or money to claim, 4) made-up legal problems, and 5) pretend package delivery problems. See details at FTC.gov.

Millennials become largest share of home buyers

The National Association of Realtors reported that Millennials took over from Baby Boomers last year as the largest generational cohort among home purchasers. Millennials rose from 28% to 38% of the home-buying market last year. Meanwhile, Baby Boomers slipped from 39% to 31%. As a function of their later stage of life, Baby Boomers represented the largest share of home sellers last year, at 45%. See news release at NAR.reator.

CFPB identifies financial risks in video games

The Consumer Financial Protection Bureau (CFPB) has issued a report outlining the risks gamers may face when playing video games online. The CFPB says that gamers are coaxed to exchange real-world money for in-game currencies and virtual items. These electronic assets are increasingly the targets of fraud, such as phishing tactics or unauthorized account access. Gamers have reported getting little help from gaming companies when reporting such scams. Also, the CFPB warned about the amount of data gaming companies gather. This can include personal and financial data, location details, and regular movements. As virtual reality headsets become popular, data gathering can extend to biometric information. See news release at ConsumerFinance.gov.

Bankruptcies approaching crisis levels

Major corporate bankruptcies last week were running at a pace last seen in the aftermath of the 2008-2009 financial crisis. Commercial insolvency was up by 43% in the first quarter of 2024 compared with the same quarter last year. This is part of a broader trend that has seen overall bankruptcies, including individuals and businesses, steadily rising for 20 months. Higher interest rates are cited as a factor that is making debt burdens harder to bear. Also, a backlog of potential bankruptcies built up while forbearance policies were in place during the pandemic. See article at Yahoo.com.

VantageScore usage rises quickly

VantageScore, a credit score alternative to the traditional FICO score, is gaining traction. The company reports that VantageScore usage rose by 43% last year. Users now include 3,400 different financial institutions. This includes eight of the top ten banks. In all, VantageScore was used 27 billion times last year. Growth was robust in the credit card category, with usage by card issuers jumping by 172% last year. VantageScore is a joint venture of the three major credit reporting bureaus: Equifax, Experian, and TransUnion. See article at PRNewswire.com.

Credit issues lead consumer financial complaints

The Consumer Financial Protection Bureau (CFPB) identified issues relating to credit as the source of most of the complaints it receives from consumers. In an annual report on consumer complaints, the CFPB said it received more than 1.3 million complaints last year. 81% of these were related to credit or consumer reporting. Debt collection was the second most common subject of consumer complaints. Many of the complaints the CFPB received last year related to fraudulent activity. Examples include finding unfamiliar accounts or credit inquiries on credit reports, debt collectors pursuing loans consumers claim they did not initiate, and unauthorized transfers out of deposit accounts. See report at ConsumerFinance.gov.

Job growth keeps a full head of steam

The Bureau of Labor Statistics reported that the US economy added a net 303,000 new jobs in March 2024. Job gains in health care, government, and construction led to employment growth. March’s gain of 303,000 new jobs was well above the average of 231,000 for the past 12 months. On top of March’s strong employment growth, there was a net upward revision of 22,000 to previously reported figures for January and February. Continued strength in the job market validates the Fed’s cautious approach to lowering interest rates as long as inflation remains troublesome. See employment report at BLS.gov.

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1. Job growth continues, with some question marks
2. Credit card delinquencies and net losses close to pre-pandemic levels
3. Government finalizes plan to cap credit card late fees at $8
4. American Express sounds alarm about third-party data breach
5. Job openings now lowest since 2021
6. FICO scores declined in late 2023
7. Bank profits take a hit in the aftermath of last year’s failures
8. Mortgage rates dip for the first time in five weeks

Job growth continues, with some question marks

The US economy added 275,000 new jobs in February 2024. That was the 38th consecutive month of job growth and is above the average monthly job gain of 230,000 over the past year. However, there were significant negative revisions in initial estimates for job growth in December and January. IJobgrowth for those two months was 167,000 lower than initially thought. See Employment Situation Summary at BLS.gov.  

Credit card delinquencies and net losses close to pre-pandemic levels

An S&P Global report on six major credit card issuers found that late payment rates are close to their pre-pandemic level, and net loss rates are now above that level. Net loss rates measure the portion of money owed that credit card companies have been unable to collect. 30-day delinquency rates rose to 1.41% in January. This is up from 1.05% a year ago and is approaching its pre-pandemic rate of 1.50%. Capital One has the highest delinquency rate among the major credit card issuers, at 2.03%. Net loss rates are now at 2.07%, up from 1.30% a year ago. This rate is now higher than the pre-pandemic level of 2.05%. Consumer credit generally improved in the early stages of the pandemic due to government assistance and reduced spending. However, this improvement has been largely erased over the past few years. See report at SPGlobal.com.

Government finalizes plan to cap credit card late fees at $8

The Consumer Financial Protection Bureau (CFPB) has announced that it will limit credit card late fees to $8 per occurrence. Currently, the average is around $32. Credit card companies will be able to charge more than $8 if they can demonstrate that late payments cost them more. According to the CFPB, 45 million people incur late fees annually. Some of these late payers may lose access to credit cards if issuers find that chronic late payers are no longer financially attractive. See news release at ConsumerFinance.gov.

American Express sounds alarm about third-party data breach

Credit card giant American Express has informed customers and regulators that some sensitive information has been compromised. American Express specified that its data systems were not breached. Instead, it had become aware that a third-party vendor used by many merchants to process credit card transactions had suffered a data breach. As a result, details about American Express accounts may have been exposed. The information that may be at risk includes customer names, account numbers, and expiration dates. See story at PYMNTS.com.

Job openings now lowest since 2021

The Bureau of Labor Statistics reported fewer job openings in January 2024 than at any time since March of 2021. There were 8.86 million jobs available as of January 31. That was a slight decrease from 8.89 million jobs available at the end of December. The total number of job openings has generally declined for nearly two years. However, there are still more jobs available than there are people looking for work. That’s a departure from the historical norm. A decline in job openings is good news for the battle against inflation. In recent years, a tight labor market has fueled wage inflation. On the other hand, it does add to recent concerns that the economic expansion may be losing steam. See article at Yahoo.com.

FICO scores declined in late 2023

The average FICO score for US consumers fell slightly in the most recent measurement. As of October 2023, the average FICO score was 717. This was down by 1 point from the previous measurement as of July 2023. This marked the first time in a decade that the average US FICO score declined. On a positive note, FICO scores are still 27 points higher than ten years ago. Reasons given for the decline in the average FICO score were the rising number of missed payments and higher debt levels. See details at FICO.com.

Bank profits take a hit in the aftermath of last year’s failures

The FDIC reported that profits in the banking sector were down by 43.9% in the fourth quarter of last year. Most of the decline was due to non-recurring expenses incurred by banks. To a large extent, these non-recurring expenses consisted of special fees to replenish the FDIC’s deposit insurance fund. That fund was depleted by a spate of sizable bank failures last year. See article at Yahoo.com.

Mortgage rates dip for the first time in five weeks

30-year mortgage rates fell by 0.06% last week to 6.88%. This was their first weekly decline since February 1, 2024. Even with last week’s decline, 30-year rates are still 0.17% higher than when the year began. 15-year rates also fell last week, dropping 0.04% to 6.22%. 15-year rates have risen even more than 30-year rates so far this year, with a 0.29% year-to-date increase. See rate details at FreddieMac.com.

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1. US saw massive job growth in January
2. Fed to allow emergency lending program to expire in March
3. Economists are less optimistic than investors
4. Credit report shows dependence on borrowing rose in 2023
5. Liquidation of Chinese real estate giant could have global aftershocks
6. Payday advance programs grow in popularity – and costs
7. Credit card delinquencies and balances continued to grow in December
8. Last year’s bank failures cause new problem
9. Fed leaves interest rate target unchanged

US saw massive job growth in January

The 2024 January employment report started the year with a bang, showing that 353,000 jobs were added in the past month. That’s well above the average monthly job growth of 255,000 last year and the best month for new jobs since last January. In addition, the previous estimates of job growth for November and December were revised upward to 126,000. With the favorable job growth, January of 2024 became the 20th consecutive month in which the US job market has set a new record for the total number of people employed. The strong job growth in recent months supports the Federal Reserve’s decision to take a cautious approach to lowering interest rates. See the Employment Situation report at BLS.gov.

Fed to allow emergency lending program to expire in March

The Federal Reserve announced that it will allow the Bank Term Funding Program (BTFP) to expire on schedule this March 11. The BTFP was implemented to help maintain bank liquidity when bank failures threatened to create panic in the banking system early last year. The BTFP allowed banks to use the face value of Treasury securities as borrowing collateral, even though rising interest rates had driven the market value of many of those securities below face value. This prevented banks from losing access to funds due to temporary fluctuations in the prices of their reserves. The fact that the Fed is allowing the program to expire on schedule indicates that the banking system has stabilized over the past year. However, the BTFP has been criticized for offering overly generous terms that allowed banks to earn a risk-free profit at the government’s expense. See article at Reuters.com.

Economists are less optimistic than investors

A Reuters poll of global economists found their forecasts are more cautious than the aggressive investments reflected in recent financial market performance. The consensus among economists is for a global growth rate of 2.6% in 2024. That would be a solid but unspectacular year of growth. In contrast, financial markets have rallied on speculation that central banks will make deep rate cuts during the year. Global growth is expected to vary a great deal by nation. The United States and India are predicted to be among the strongest growers in 2024. Expectations are for growth to lag in the eurozone and China. See article at Reuters.com.

Credit report shows dependence on borrowing rose in 2023

The VantageScore CreditGauge report showed that credit card borrowing increased last year, and a growing number of consumers are having trouble keeping up with their payments. Nearly 50% of credit card customers regularly carry a balance. The average balance grew by 8.2% last year to $6,400. Credit utilization – the amount of customer credit limits currently in use – rose to 31.7% last year. New credit card and personal loan originations continue to grow in December. Meanwhile, year-over-year delinquency rates were up for auto loans, credit cards, personal loans, and mortgages. See news release at PRNewswire.com.

Liquidation of Chinese real estate giant could have global aftershocks

A court in Hong Kong has ordered Evergrande, a massive real estate finance company, to liquidate assets to pay its debts. The court order comes two years after the firm defaulted on debt payments. Evergrande has repeatedly failed to come up with a workable restructuring plan. While this order will only directly affect Evergrande’s operations in Hong Kong, there are concerns about the widespread impact on investors. With over $300 billion in debts, Evergrande’s inability to pay its creditors could also put many of those creditors in financial distress. See article at Sky.com.

Payday advance programs grow in popularity – and costs

Programs that allow workers to access the money they’ve earned in advance of payday have grown in popularity in recent years. The annual amount of pay being accessed early now exceeds $9 billEmployers often offer these programsoyers as a benefit, but some are available directly to consumers. The concern is that frequent users can find various fees translate to the equivalent of a 330% annual interest rate on pay accessed early. See article at NBCBayArea.com.

Credit card delinquencies and balances continued to grow in December

The latest Credit Industry Snapshot from TransUnion shows that the percentage of late payments on credit cards grew for a seventh straight month in December. The average balance on credit cards rose by $203 to $6,343, while the average credit limit increased by the same amount to $26,416. Delinquency rates also rose for auto loans, mortgages, and unsecured personal loans. See details at TransUnion.com.

Last year’s bank failures cause new problem

After buying out one of the regional banks that failed last year, New York Community Bancorp is facing financial trouble due to the acquisition. The large regional bank’s stock tumbled when it announced a surprisingly sizeable fourth-quarter loss plus a cut to its dividend. The bank cited the need to increase its loss provisions as a reason for the earnings setback. The bank said it set aside more money because of deteriorating credit conditions and because the acquisition put it above a regulatory size threshold requiring larger reserves. See article at Yahoo.com.

Fed leaves interest rate target unchanged

The Federal Reserve announced on January 31 its decision to leave the Fed funds rate in a target range of 5.25% to 5.50%. In its comments, the Federal Open Market Committee (FOMC) noted the economy’s solid growth recently, and the fact that inflation has been easing. However, the FOMC reiterated its goal of lowering inflation to 2%. This aggressive goal will likely make the FOMC cautious about the pace of interest rate cuts this year. See news release at FederalReserve.gov.

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1. Job growth cooled in October 2023
2. Persistent inflation outpaced income growth in September 2023
3. Auto workers’ win might be consumers’ loss
4. Credit scores hit all-time high even as late payments rise
5. Stocks post a third consecutive monthly decline
6. Federal Reserve keeps interest rates unchanged for now
7. Americans tapping retirement funds to relieve financial pressure
8. Consumer confidence falls again

1. Job growth cooled in October 2023

National employment grew by 150,000 jobs in October 2023. That represents a substantial slowing from September’s job growth of 297,000 and from the monthly average of 258,000 for the past 12 months. The latest job report also included significant downward revisions of figures previously reported for August and September. These downward revisions total 101,000 jobs. The slower job growth may be viewed as a “just right” economic outcome – strong enough to represent continued growth but not so hot as to add fuel to the inflationary fire. See full Employment Situation report at BLS.gov.

2. Persistent inflation outpaced income growth in September 2023

Personal income in the United States grew by 0.3% in September. Over the same month, the Personal Consumption Expenditures (PCE) price index increased by 0.4%. The PCE price index is the measure of inflation the Fed uses as a basis for its economic projections. The PCE price index is up 3.4% over the past year – the same 12-month reading that was recorded at the end of July and the end of August. So, while inflation has eased from its peak, it seems to have plateaued at a level well above the Fed’s target of 2.0%. With consumers continuing to spend heavily despite inflation outpacing income growth, the personal saving rate continued to decline. The personal saving rate was 3.4% in September, down from 4.0% in August and 5.2% six months ago. See full release at BEA.gov.

3. Auto workers’ win might be consumers’ loss

The United Auto Workers (UAW) union reached a tentative deal with the three major Detroit-based car companies. GM, Ford and Chrysler’s parent company Stellantis agreed to a deal that could lead to 33% wage increases over time. While this helps the economy avoid potential supply shortages for autos and parts, the generous compensation terms are likely to add to inflation pressures. The inflationary impact could spread if the UAW’s apparent victory emboldened other unions to seek aggressive terms in labor disputes. See article at Reuters.com.

4. Credit scores hit all-time high even as late payments rise

FICO announced that the average consumer credit score in the US hit an all-time high of 718 earlier in 2023. That’s up two points from the previous high of 716, which was maintained from April of 2021 through October of 2022. Credit scores received an artificial boost from the federally mandated removal of credit collection accounts of less than $500 from credit reports. FICO cites continued strong employment as a positive factor for credit scores. However, it also noted that both balances and late payments are up. See analysis at FICO.com.

5. Stocks post a third consecutive monthly decline

The S&P 500 closed October with a loss, marking the third month in a row it has fallen. That’s the first time since March 2020 that the S&P 500 has suffered three straight months of losses. The Dow Jones Industrials Average and the Nasdaq index have also declined for three straight months. Though all three indexes have done poorly of late, their returns for the first ten months of 2023 differ significantly. The Nasdaq was up more than 22% through October, while the S&P 500 was up 9%, and the Dow was showing a slight loss. Stocks have been declining recently despite generally favorable earnings reports. That’s because rising interest rates reduce the relative value of future earnings and dim the prospects for the economy. See article at Yahoo.com.

6. Federal Reserve keeps interest rates unchanged for now

The Federal Open Market Committee (FOMC) wrapped up its latest meeting on November 1 with an announcement that it will keep rates unchanged for the time being. That means the Fed will continue to hold rates in a range of 5.25% to 5.5%. However, its latest projections show that the FOMC expects to make one more rate hike in 2023. That means that a quarter-point rate increase is likely at the conclusion of the Fed’s December 12-13 meeting, unless there is a significant change in economic conditions before then. See FOMC statement at FederalReserve.gov.

7. Americans tapping retirement funds to relieve financial pressure

A Bank of America report says that the number of their clients taking early withdrawals from their 401k plans in the second quarter of 2023 was 36% higher than it was a year earlier. The number of Americans borrowing against their retirement plans has also increased. Both early withdrawals and borrowing against retirement plans have negative financial impacts, so rising numbers of people resorting to these measures is considered a sign of financial strain. In particular, early withdrawals are costly. They are subject to ordinary income taxes plus a 10% early withdrawal penalty. This is in addition to no longer allowing that portion of the balance to benefit from tax-advantaged investment growth. See article at Forbes.com.

8. Consumer confidence falls again

Consumer confidence fell for the third consecutive month in October 2023. Both consumers’ assessments of the present situation and their expectations for the future slipped. The Expectations Index continues to read below 80, a level that has typically signaled a recession within the next 12 months. See news release at Conference-Board.org.

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At the end of July 2023, Federal Reserve Chairman Jerome Powell announced that his economists were no longer predicting a recession. A couple of major banks also upgraded their economic forecasts. Does this mean the threat of a recession is over?

Combined with the easing of inflation, avoiding a recession would mean the economy had accomplished a soft landing. That’s where demand slows enough to cool off inflation without the economy plunging into a recession. That has been the goal of the Fed’s monetary policy over the past year-and-a-half, but it’s too early to declare victory. So far, the news is encouraging. However, there are still hazards to navigate, both in terms of inflation and a possible recession.

Economists react to good news

Fed Chair Powell stated that while his economic staff still expected the pace of economic growth to slow later this year, “given the resilience of the economy recently, they are no longer forecasting a recession.” Some major Wall Street banks are starting to see things the same way. JP Morgan Chase and Bank of America upgraded their forecasts to no longer include the probability of a recession this year.

In part, these economists are reacting to good news. The advance estimate of second-quarter economic growth from the Bureau of Economic Analysis showed Gross Domestic Product growing at a 2.4% inflation-adjusted annual rate, up from 2.0% in the first quarter. Employment grew for 31 consecutive months.

Meanwhile, on the inflation front, the Consumer Price Index rose at an annual rate of just 2.6% over the six months to the end July 2023. While not quite down to the Fed’s target of 2.0%, this marked substantial progress from the middle of 2022 when inflation was around 9%.

The progress on inflation is potentially good news for growth. It means the Fed may soon be able to stop raising interest rates, or even start to lower them. As long as inflation remains under control, this would allow the Fed to stop riding the brakes and let the economy roll.

It’s easy to see why economists are feeling more optimistic However, that doesn’t mean their optimism is correct.

Where have I heard this before?

To put the Fed’s improved economic forecast in perspective, here’s a reminder from Jeffrey S. Coons, Chief Risk Officer and Director of Institutional Services at investment management firm High Probability Advisors, “Fed Chairman Powell is currently saying the same thing that Bernanke proclaimed back in January of 2008.”

Indeed, then-Fed Chair Ben Bernanke was quoted in a January 2008 Reuters article as saying “The U.S. economy remains extraordinarily resilient.” Of course, we now know that January of 2008 was the month when the Great Recession began.

Nobody’s perfect. The point is not to second-guess Bernanke for an off-base forecast. It’s just a helpful reminder that economic forecasting is far from an exact science.

This is especially true when there are conflicting economic signals. While the economy has shown encouraging signs in terms of both sustaining growth and moderating inflation, there are still challenges on both fronts.

Threats to growth remain

In terms of growth, the economy’s run of four consecutive quarters of positive real GDP faces the following headwinds:

Debt is eating up a growing portion of household budgets

The Federal Reserve Bank of New York’s Household Debt and Credit report found that credit card debt crossed the $1 trillion mark for the first time in the second quarter of 2023. Overall consumer debt reached a record $17.06 trillion. These new highs are coming at a time when higher interest rates have made debt much more expensive. Credit card rates are up 6.25% since early 2021.

The combination of higher debt balances and rising interest rates means debt payments are taking a larger bite out of consumer budgets. The debt service ratio on non-mortgage consumer debt has risen by 17.65% over the past two years. This ratio measures debt payments as a percentage of discretionary income. After falling sharply in the first year of the pandemic, debt service ratios on non-mortgage consumer debt are now above their long-term historical average.

Tighter lending standards are making credit harder to come by

As debt burdens have increased, more and more consumers are showing signs of strain. The S&P Experian Consumer Bankcard Default index has nearly doubled since before the pandemic. New delinquencies of 90 days or more on credit cards have risen by 50% over the past year.

With borrowers heavily extended and increasingly having trouble paying their bills, lenders are responding by tightening their credit standards.

The Federal Reserve’s Senior Loan Officer Opinion Survey shows that several banks have tightened their lending standards for various forms of consumer credit recently. The Federal Reserve Bank of New York’s Credit Access survey found that rejection rates for credit applicants recently reached a 5-year high. In particular, lenders are being tough on applicants with lower credit scores, with most applications from people with credit scores of 680 or below now being rejected.

The resumption of student loan payments will force tough choices

Finally, a large unknown hangs over the economy in the form of the scheduled resumption of student loan payments later this year. A study by Oxford Economics suggests that the resumption of these payments will total over $100 billion a year. That’s money that could potentially be unavailable to consumers for other debt payments or spending.

Student borrowers could reduce those payments by signing up for an income-driven repayment plan. Historically though, borrowers have often failed to avail themselves of this option.

Each of the three factors detailed above represents a likely headwind for the economy in the months ahead. The economy has little momentum to spare, having grown sluggishly over the past year-and-a-half. So, despite the optimism of some economists, it may be too early to dismiss the possibility of a recession.

Inflation isn’t completely under control

The other component of a soft landing, getting inflation under control, is also far from a done deal. Certainly, the numbers in recent months look encouraging. But a growing number of examples of labor unrest show that workers want to catch up with the hefty price jumps of recent years. Their wage demands could spark another round of inflation.

Energy costs are also a concern. Energy is often the bell cow of inflation – and where it goes, other sectors follow.

The economy benefitted from falling energy prices for the year ending June 30. More recently though, strong demand and production cuts have caused a sharp rise in the price of oil. Since mid-year, the price of oil has jumped by 17.4%.

Looking at both growth and inflation, it’s fair to say the economy has come a long way in the past year. However, a soft landing for inflation still seems a long way off.

If you found Do current economic conditions mean a soft landing for inflation? interesting, you may enjoy,

• The effect of inflation on American households
• What are the different kinds of inflation?
• What is the impact of inflation on consumer credit?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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1. Job growth continues but slows
2. Workers seek flexibility
3. Buy now pay later programs often used in addition to traditional credit
4. Visa seeks to limit credit card surcharges
5. Heartland Tri-State Bank the latest to fail
6. US government credit rating drops
7. Job turnover slows
8. Government sues auto lender

1. Job growth continues but slows

Employment in the United States continued its long growth streak in July. However, the pace of that growth has eased in recent months. The economy added 187,000 jobs in July, essentially the same as the 185,000 jobs added in June. Both figures are down substantially from May’s addition of 281,000 jobs. Employment has now grown for 31 consecutive months. These figures for recent months are below the 12-month job growth average of 312,000 jobs. This slower job growth may be good news. Unemployment is already low at 3.5%, and there are far more job vacancies than job seekers. More robust job growth at this point would add to inflationary pressures. See employment report at BLS.gov.

2. Workers seek flexibility

American workers increasingly favor jobs that don’t tie them to a particular location. According to an analysis by job-search platform Flexa, 88% of job seekers preferred companies with a “work from anywhere” policy. This kind of policy generally means employees are allowed two to four weeks a year outside the office from any location. This enables them to travel without using up vacation time. 59% of workers went even further, preferring to fully remote work. The percentages for “work from anywhere” policies and fully remote work are up from an April survey. See SeattleTimes.com.

3. Buy now pay later programs often used in addition to traditional credit

Rather than acting as an alternative to traditional credit, buy now pay later (BNPL) programs are often used by consumers alongside traditional credit like loans and credit cards. 54% of BNPL users also report having credit card debt. This makes them more likely to have credit card debt than non-BNPL users, 38% of whom have credit card debt. 33% of Americans currently use BNPL, up from 30% a year ago. An additional 12% say they intend to use BNPL in the future. See article at Forbes.com.

4. Visa seeks to limit credit card surcharges

Credit card issuer Visa is taking action against businesses that charge a surcharge to customers who use credit instead of cash. Visa is capping the additional amount businesses that use its payment processing system can charge for using credit at 3%. It also does not allow businesses to charge their customers a bigger surcharge than the amount the business pays to use the system. Visa even goes to the lengths of sending auditors to businesses to check whether they apply surcharges appropriately. See article at Fortune.com.

5. Heartland Tri-State Bank the latest to fail

A small Kansas bank has joined the list of 2023 bank failures. Heartland Tri-State Bank of Elkhart, KS, was closed on July 28. The FDIC reached an agreement with Dream First Bank of Syracuse, KS, to assume the assets and liabilities of Heartland Tri-State Bank. Customers of the failed bank can now access their accounts at Dream First Bank. Heartland Tri-State Bank had four branches and $130 million in deposits. The failure is expected to cost the FDIC’s insurance fund $54.2 million. See media release at FDIC.gov.

6. US government credit rating drops

Fitch, a credit bureau that issues ratings for institutions like governments and businesses, downgraded the United States’ credit rating. They dropped the US credit rating to AA+, just below AAA’s top credit rating. As with individuals, a reduced credit rating for the US government could result in it paying more to borrow money. Fitch moved despite Congress and the Biden Administration resolving the latest debt ceiling crisis a few months ago. The repeated fiscal brinksmanship plus deteriorating government finances were cited as reasons for the downgrade. US stocks fell in the days following the announcement. See article at Reuters.com.

7. Job turnover slows

Both new hires and separations from jobs slowed down in the latest Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics. New hires slowed by 326,000, while job separations decreased by 288,000 in June. Most notably, the number of people quitting their jobs fell by 295,000. Overall, the job market remains robust, with unemployment extremely low and more job openings than job seekers. See details at BLS.gov.

8. Government sues auto lender

The Consumer Financial Protection Bureau (CFPB) has sued auto loan provider USASF for alleged illegal practices. USASF is accused of using a device to automatically deactivate borrowers’ vehicles, even if they didn’t default on their loans. The CFPB also alleges that USASF failed to refund some customers for prepaid insurance premiums once their loans were paid off and double-charged some borrowers for coverage. Another part of the complaint says that USASF improperly repossessed some borrowers’ vehicles. See news release at ConsumerFinance.gov.

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1. Job growth slows
2. Supreme Court disallows student loan forgiveness
3. Mastercard launches subscription management service
4. Oil prices continue to slump
5. Key inflation indicator muted in May
6. Stress test shows bank resiliency
7. Manufacturing weakness continues
8. Yield curve signals likely recession
9. Mortgage rates hit 2023 high

1. Job growth slows

The US economy added 209,000 jobs in June. That marked a slower pace of employment growth than May’s 306,000. Along with weaker job growth, there were other signs of a weakening job market. Initial job growth estimates for April and May were revised downward by 110,000. Also, the number of people working part-time rather than full-time for economic reasons increased by 452,000. That marks a 12% increase in just one month of people who would prefer to work full-time but had to settle for part-time employment. See report at BLS.gov.

2. Supreme Court disallows student loan forgiveness

Following a Supreme Court ruling that canceled their student loan forgiveness plan, the Biden Administration seeks an alternative. The President is now proposing a plan that involves a grace period of 12 months once loan payments resume in October. It also would drastically modify current income-driven repayment programs. The new proposal would eliminate payments for anyone making less than 225% of the federal poverty level. It would limit payments to 5% of discretionary income. Finally, for loans of $12,000 or less, it would eliminate remaining loan balances after ten years. This proposal seems likely to lead to a new round of court challenges. See article at Yahoo.com.

3. Mastercard launches subscription management service

Amid criticisms that streaming and other subscription services have become overly expensive and hard to handle, Mastercard has teamed with Subaio to offer a new subscription management service. This service allows consumers to manage their subscription services through a single source rather than dealing with each provider separately. Subscription management has become a hot new area in fintech. Mastercard’s research found that the average consumer has 12 different media and entertainment subscriptions, with millennials juggling an average of 17 such subscriptions. See release at Mastercard.com.

4. Oil prices continue to slump

Brent oil prices, which act as a global benchmark for oil, declined for the fourth consecutive quarter in the second quarter of 2023. Prices have remained weak despite efforts by oil producers to limit supply. Falling energy prices have been a moderating influence on inflation over the past year. See article at Yahoo.com.

5. Key inflation indicator muted in May

The Personal Consumption Expenditure (PCE) price index rose by just 0.1% in May 2023. The PCE price index is the primary inflation indicator used by the Federal Reserve. The 0.1% increase represents slowing inflation after the PCE price index rose by 0.4% in April. May’s increase brings the inflation rate for the past year to 3.8%. However, core inflation remains more elevated at 4.6%. See details at BEA.gov.

6. Stress test shows bank resiliency

Key US banks passed a Federal Reserve stress test with flying colors. Twenty-three major banks, including industry leaders JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley, participated in the test. The test measured whether the banks’ financials could continue to meet the Fed’s reserve requirements in the event of a severe global recession. The test measured how the banks would react when unemployment reached 10% and the stock market lost 45%. See details at Yahoo.com.

7. Manufacturing weakness continues

A widely-followed measure of US manufacturing activity fell for an eighth straight month in June. The Institute for Supply Management (ISM) manufacturing index fell to 46, down from 46.9 in May. Any reading below 50 indicates declining manufacturing activity. The index has been below 50 for the longest time since the 2008-2009 recession. The current reading is the lowest since May 2020. See article at Yahoo.com.

8. Yield curve signals likely recession

The spread between 2-year and 10-year Treasuries is now the most inverted in 42 years. An inverted yield curve is when short-term yields exceed long-term yields. The spread recently reached 109.5 basis points. High short-term yields are partly due to the Fed’s string of rate increases. While lower long-term yields could be taken as a sign that the Fed’s inflation-fighting efforts will succeed, they also suggest that a recession might be necessary to smother inflation thoroughly. See article at Reuters.com.

9. Mortgage rates hit 2023 high

30-year mortgage rates rose for a second week to reach 6.81%. That marks their highest in 2023, though it’s still short of last year’s peak of 7.08%. 15-year rates also reached their highest point in 2023, reaching 6.24%. See details at FreddieMac.com.

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