Lower and Middle-Income Consumers Are Stressed

As we head into 2025 and wonder what the economy will look like, it is worth recalling that the economy is heavily based on consumer spending and many consumers are tapped.  Credit card debt is at an all-time high, and interest rates on that credit card is also at a record level.  The personal savings rate has declined.  So not surprising that according to one source, in the first nine months of 2024 credit card companies wrote off $46 billion of debt, meaning they gave up on collecting it.  These defaults are one reason interest rates on credit cards is so high and other consumers end up paying the cost for those who don’t pay their debts.  It also means that credit card companies will crack down harder on who even gets a credit card and how much debt they can carry on the card.

Upper-income households are doing fine, as asset prices, like stocks, have risen rapidly.  They do a lot of spending and can prop things up for a while but eventually the economy will stumble if it doesn’t have a broader base of consumer spending.  And conditions look terrible for the vast bulk of consumers–wages not keeping up with inflation, high costs for basic items–housing, health care, food, transportation, and depletion of spending and credit card limits.  Another headwind for the Trump administration.  (ZH Post)