Americans are carrying more consumer debt than ever before but so far don’t seem to be having much trouble managing it, the Wall Street Journal reported on Tuesday. Consumer debt, including credit cards, auto and student loans and personal loans, is on pace to top $4 trillion in 2019. That comes even as mortgage debt approaches levels last seen during the housing meltdown. Homeowners owed about $10.3 trillion on mortgages at the end of the third quarter, up 2.8 percent from a year earlier, according to Federal Reserve data. Mortgage debt peaked at $10.7 trillion in early 2008. Easing the burden are a growing U.S. economy, wage gains, unemployment near a 50-year low and still historically low interest rates. Losses on most consumer loans remain low. Consumer spending has increased 2.7 percent on average in the four quarters through September compared with the same period a year earlier, as disposable income rose 2.7 percent on average, according to Moody’s Investors Service. Meanwhile, personal savings as a percentage of disposable income was 6.3 percent in the third quarter, above a 20-year average of 5.9 percent, according to Bureau of Economic Analysis data. (Subscription required.)
Hedge Funds Turn to Private Capital Playbook in Search of Assets
Hedge funds are trying on new stripes as the industry’s traditional investing style loses its luster, according to a Bloomberg News analysis. "Hedge funds are increasing their breadth of offerings, such as adding venture funds, private credit and illiquid strategies with longer lockups,” said Joseph Gasparro, who helps hedge funds build capital as head of Americas capital services content at Credit Suisse Group AG. “By employing new offerings, firms diversify their product base and increase the stability of their assets.” Even successful managers see the urgency to evolve in the face of market pressures from quants, indexers and President Trump. While the industry suffered outflows and dismal performance through the first 11 months of 2018, managers are following big investors into the booming world of private capital. Hedge funds are partly responding to the demands of investors. They are “challenging” managers about products that best fit their needs and pushing for customization and diversification, according to a 2018 global survey by consulting firm EY.
U.S. Factory Activity Hits Two-Year Low as Orders Plunge
U.S. manufacturing activity slowed sharply to a two-year low in December amid a plunge in new orders and hiring at factories, which could further stoke concerns about how immune the U.S. economy is to a global growth slowdown, Reuters reported today. While the broader labor market remains strong, the Institute for Supply Management (ISM) survey published on Thursday offered a downbeat assessment of the manufacturing sector, with almost all components declining last month. “The economy is just going to be spinning its wheels with subpar growth in 2019 if the purchasing managers report is to be believed,” said Chris Rupkey, chief economist at MUFG in New York. “New orders have dried up, and this will take a toll on business investment and growth in 2019.” The Institute for Supply Management (ISM) said its index of national factory activity tumbled 5.2 points to 54.1 last month, the lowest reading since November 2016. The drop was the largest since October 2008, when the economy was in the throes of a recession. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy.
Rewards Credit Cards Gained a Fanatic Following — Now Banks Are Pulling Back
Big banks calculated that giant rewards would make consumers spend more, earning the banks more interest and boosting their returns, but it appears they have calculated wrong, the Wall Street Journal reported. Consumers have figured out how to game the system, spending just enough to earn generous sign-up bonuses — then abandoning the cards in a drawer. Others pay their bills in full and avoid interest charges and late fees. After ratcheting up the perks for several years, banks hit peak rewards frenzy about two years ago. Now banks face increasing costs associated with the cards. Rewards costs grew an average of 15 percent in the third quarter of 2018 from a year earlier at Bank of America Corp., Citigroup Inc., JPMorgan, U.S. Bancorp and Wells Fargo & Co., according to bank analyst Charles Peabody. As of the third quarter, JPMorgan’s credit card holders had accrued $5.8 billion in rewards they had not yet redeemed, up 53 percent from the end of 2016, according to securities filings. JPMorgan, Citigroup and other large banks, including American Express Co., are discussing how to cut back or rejigger some of their cards’ rewards. The banks say they don’t plan to end rewards, but they want to shift them in ways that encourage more card usage and scale back upfront bonuses. (Subscription required.)
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New on ABI’s Bankruptcy Blog Exchange: Thriving on Bitcoin's Bust, Lenders Aid Both Fanatics and Shorts
As a growing number of cryptocurrency ventures struggle for funding, cut staff or shut down, all is well in one small corner of the industry: lending, according to a recent blog post.
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