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Rising APRs Big for Week2Weekers – Overall Not So Much

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As the Fed is on the path to raise short-term interest rates, which directly, and almost immediately, affect U.S. credit cardholders, there are some consumers who will feel the pinch, but overall Americans are in good shape. This news comes amidst the latest data showing U.S consumers now owe more than $1 trillion in revolving credit. 

According to government statistics, The Financial Obligations Ratio (FOR) and the Debt Service Ratio (DSR) hover at near record lows.

According to the Federal Reserve, on a seasonally adjusted basis, the FOR slipped downward to 15.40% in 4Q/16, compared to 15.41% in 3Q/16 and 15.40% in 4Q/15. The DSR decreased to 9.98% in the fourth quarter of this year, compared to 9.99% in third quarter, and 9.99% one-year ago.

The FOR peaked at 18.13% in the fourth quarter of 2007. Since peaking at 13.18% 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 (9.87%).

However, consumers of late have been taking on more debt, up 6% year-on-year (YOY) and up 11% from two years ago. Furthermore, credit card delinquency and charge-offs have been ticking slightly up throughout 2016.

U.S. consumer revolving credit for February, mostly credit card debt, topped the $1 trillion record set in December, growing at a solid clip annually. While climbing steadily throughout 2016, consumer credit increased at a 3.5% annual rate of growth in February, compared to a revised -3.2% annual rate in January and a revised +3.1% annual rate in December.

Overall consumer credit increased at a seasonally adjusted annual rate of +4.8% in February. Non-revolving credit increased at an annual rate of +5.3%.

Total revolving credit for December posted at $1000.4 billion, compared to a revised $997.4 billion in November, and a revised $1000.1 billion in December, according to the Federal Reserve.

But, consumers with “sub-prime” or “near-prime” credit are showing signs of frustration.

All of the big card issuers reporting so far are showing big increases in their delinquency and charge-off ratios.

While there is seasonality reflected in the data, there is an ugly trend emerging as short term interests rise. Most (99%) of bank credit cards are pegged to the prime. Historically, rising debt service costs drive delinquency and charge-offs higher.

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