Credit Sesame’s personal finance weekly news roundup March 11, 2023. Stories, news, politics and events impacting the personal finance sector during the last week.
- Job growth posts another strong month
- Buy-now-pay-later customers more likely to be overextended
- Crypto-friendly bank forced to close
- Tesla’s price cutting signals a change in economic dynamic
- Fed Chair signals rates will go higher than previously thought
- Treasuries give unusually strong recession signal
- Consumer appetite for debt has continued into 2023
- Check fraud is a growing problem
- Consumer spending keeps pace with inflation
1. Job growth posts another strong month
The U.S. added a net total of 311,000 new jobs in February. While this is below January’s increase of 504,000, it still represents a strong pace of job growth. That job growth combined with a very low unemployment rate adds to inflation pressure. However, an interesting aspect of February’s employment report is that the unemployment rate actually ticked up by 0.2%, to 3.6%. The unemployment rate rose despite strong job growth because more people were looking for work. The entry of more people into the job market could take some of the inflationary edge off of today’s low unemployment. See full release at BLS.gov.
2. Buy-now-pay-later customers more likely to be overextended
A study of consumers who use buy-now-pay-later (BNPL) programs found they are more likely than other consumers to be overusing other forms of credit. The Consumer Financial Protection Bureau (CFPB) found people who use BNPL are more likely than non-BNPL users to have at least one other form of credit. BNPL users are also more likely than others to be behind on their payments for other credit accounts, and generally have lower credit scores. The study contradicts a misperception that people use BNPL because they lack access to traditional forms of credit. Instead, it appears that people may use BNPL because they have maxed out other sources of credit. See release at ConsumerFinance.gov.
3. Crypto-friendly bank forced to close
Silvergate Capital, which provided services to failed cryptocurrency exchange FTX, announced it is preparing to close its banking operations and liquidate assets associated with those operations. The company said it expects to be able to return all deposits to customers. As a result of its banking problems, Silvergate’s corporate credit rating has been downgraded to a high-risk level, and it now says it expects its losses for the fourth quarter of 2022 to go beyond the $1 billion it initially reported. Silvergate’s difficulties stem from a steep drop in deposits because of the collapse of FTX plus a rush to redeem crypto-related assets in the wake of that collapse. See article at CNN.com.
4. Tesla’s price cutting signals a change in economic dynamic
Tesla has cut list prices on its high-end models by 4% to 9%. This is the fifth price reduction the automaker has announced in 2023, and the first targeted at the high end of its range. Previously, electric vehicles in general and Teslas in particular had been in such high demand that they commanded premium prices. The move to a discounting strategy reflects both greater competition and possible concern over the strength of the demand. That could bode well for slower inflation, but is not a good sign for economic growth. See article at Reuters.com.
5. Fed Chair signals rates will go higher than previously thought
Stocks dropped sharply after Federal Reserve Chair Jerome Powell told the Senate Banking Committee that interest rates are likely to go higher than previously expected. This suggests rates are headed above the 5% to 5.25% the Fed had previously forecast. The Fed funds rate currently is in a target range of 4.5% to 4.75%. Powell said that recent reports on economic growth and inflation have been stronger than expected. That could mean rates will have to go higher to bring inflation down to the Fed’s 2% target. See article at Yahoo.com.
6. Treasuries give unusually strong recession signal
The yield on 2-year U.S. Treasury securities recently rose to over 1% more than the yield on 10-year Treasuries. That is the strongest recession signal of its kind since 1981. Generally, yields on longer-term Treasuries are higher than those on shorter-term ones. When short-term yields rise above long-term ones it’s known as an inverted yield curve. Inverted yield curves have frequently preceded recessions in the past, so having a yield curve that’s inverted by more than 1% makes for an especially strong recession warning. See article at Yahoo.com.
7. Consumer appetite for debt has continued into 2023
After reaching a record high in the fourth quarter of 2022, the amount of consumer debt outstanding continued to climb in the first month of 2023. The Federal Reserve announced that consumer credit rose by a seasonally-adjusted $14.8 billion in January. That’s up from the $10.7 billion rate of increase in December, but less than the $25 billion rise forecast by economists. Consumers continue to favor the most expensive form of debt, as credit card debt grew by 11.1%, compared to 1.2% for loans (these figures do not include mortgages). See article at MarketWatch.com.
8. Check fraud is a growing problem
Despite the declining use of physical checks as a method of payment, cases of fraud involving checks continue to rise. Last year, reports of potential check fraud nearly doubled, from 350,000 in 2021 to 680,000 in 2022. More sophisticated use of technology is helping criminals get away with presenting fake checks for payments. Methods of fraud include stolen checks (often from customer mailboxes) and forged checks. Criminals also use remote deposits and ATM deposits to pass fake checks without any interaction with a bank representative. See article at ABA.com.
9. Consumer spending keeps pace with inflation
The Mastercard SpendingPulse report found that consumer spending rose by 6.9% over the past year through the end of February. That was roughly equal to the rate of inflation. Consumers continue to splurge on in-person experiences. Over the past year, spending on lodging rose by 42.7%, airline spending rose by 15.6% and restaurant spending rose by 14.2%. See news release at Mastercard.com.
