South Floridians are among the nation’s most prolific consumers in signing up for new credit cards, a trend that may not bode well for household financial stability in a period of high inflation.
In a national survey, LendingTree, the online loan marketplace, found the Greater Miami area “has the 8th-most residents who opened a new credit card in the first half of 2023,” according to a statement.
Nationally, the organization analyzed more than 200,000 anonymous credit reports to learn where consumers are opening new credit card accounts.
In the Miami-Fort Lauderdale-West Palm Beach region, 32.6% opened at least one new account from January through June. Those new cards carried average credit limits of $4,984.
“Five other Florida metros, Deltona (36.1%), Orlando (33.2), Tampa (32.8%), Lakeland (32.6%), and Palm Bay (32.4%), are among the metro areas with the highest percentage of residents who opened a new credit card in 2023,” the organization said.
The Northeast city of New Haven, Conn., had the highest percentage of residents who opened new accounts at 37.9%.
Nationally, 28.8% of consumers opened at least one credit card with an average limit of $5,011.
Households under stress
The growth in new plastic could well point in many instances to a stressed consumer struggling to pay the usual household bills as wages fail to keep pace with runaway prices. U.S consumer debt is rising by the billions amid higher interest rates, topping $1 trillion for the first time, according to the Federal Reserve Bank of New York.
Nationwide, 28.6% of consumers with subprime credit scores or lower opened a credit card in the first six months of 2023, noted Matt Schulz, LendingTree’s chief credit analyst.
“Those with subprime credit scores might be opening more credit cards simply because they need to,” Schultz said in the statement. “A lot of folks lean on credit cards as de facto emergency funds when times get tough, and that could certainly be driving some of these sign-ups.”
In an interview, Sean Snaith, an economist and director of the University of Central Florida’s Institute for Economic Forecasting, agreed the growth in new cards “is largely driven as a way to patch holes in the consumer’s monthly budget.”
“Looking back on my life there were certainly periods where I did the same thing,” Snaith said Tuesday. “Back then I had to pay my long distance telephone bill, which wasn’t cheap. You’ve got a hole in your shoe, you need to buy a pair of shoes.”
“I think you see nationally a runup in credit card debt that surpassed a trillion dollars, and it really largely coincided with inflation getting out of control,” he added, noting that credit card interest rates easily average well above 20%.
Consumers short on optimism
In a separate survey, the consumer finance site Bankrate found that 63% of Americans “do not expect their personal financial situation to improve in 2024, including more than 1 in 4 (26%) who believe their finances will get worse and 38% who expect them to stay the same.”
Conversely, 37% believe their finances will improve next year.
Inflation was cited as the biggest obstacle to improving personal finances. Others cited “stagnant or reduced income,” the legislation passed by elected representatives, and changing interest rates.
Bankrate said it found that three in five, or 60% of employed Americans “say their income has not kept up with increases in household expenses due to inflation in the past 12 months, up from 55% last year.”
Despite the spate of depressed consumers, Ted Rossman, a Bankrate senior analyst, said in an interview Tuesday that the big picture can be seen through two different lenses.
He sees positives in the growth of credit card use, as nationally 53% of cardholders are paying off their balances in full every month while the other 47% does not. Many cardholders are chasing credit card perks and rewards as opposed to those who are trapped in a debt cycle.
Meanwhile, banks are still lending, credit limits are up and the volume of new cards opened “is down a little bit,” he said. “That suggests freer lending and better creditworthy customers.”
Although delinquencies have doubled in the last two years, the overall delinquency rate “is only a little higher now than in 2019,” he said.
Still, although most people are working and wages are going up, “they don’t feel good about it.” .
“I would also look at ‘buy now, pay later’ usage that was up over 40% year over year on Black Friday and Cyber Monday,” Rossman said. “That to me is a warning sign. Maybe it feels more responsible than a credit card. But it’s still debt. I do think it’s a bit alarming.”
“I would sum it up by saying the big picture is better than is what is going on at the households,” he said. ”“Despite the negative sentiment, the truth is the economy is doing pretty well.”
UCF forecast: Florida to grow, but more slowly
In his yearly economic forecast, Snaith predicted this week that Florida is prepared to walk a “precarious tightrope” between low growth and a possible recession.
Despite a housing market filled with high prices and slowed by rising mortgage rates, he said the state “is still expected to grow during a national slowdown and through 2027.”
“More baby boomers continue to reach the end of their working lives, and this bodes well for continued population growth via the in-migration of retirees, as well as job seekers to Florida,” Snaith said.
But rising consumer debt and real wage erosion will remain a drag on consumer spending.
“When we started this year, everyone and their great aunt were pretty sure there would be a recession in 2023,” he said Tuesday. “I think growth will slow down,. This erosion of real wages and rising debt for consumers at the same time all that pandemic savings households had built up has been exhausted. I think it is going to show up more in consumer spending.”
Among other points from his four-year Florida forecast:
- Payroll job growth will begin to falter with a slowdown in the U.S. economy, but not in every sector. After year-over-year growth of 4.6% in 2021 and job growth of 5.7% in 2022, payroll employment in 2023 will be 2.4%, contracting in 2024.
- Job growth will turn positive and grow by 1% in 2026 and 1.6% in 2027. The unemployment rate fell to 2.9% in 2022. A slowing economy will push up the rate to 4.4% in 2024 and to 5% in 2025 before declining to 4.7% in 2027.
- Housing starts have felt the bitter chill of mortgage rates near 8%. Total starts were 192,213 in 2022 — before higher mortgage rates and worries of a slowing economy will result in a deceleration in starts to 148,380 in 2027.
- Real personal income growth will average 2.8% during 2023-27. Following an inflation-driven contraction in 2022, growth will be 3% in 2026. Florida’s average growth will be 0.7 percentage points higher than the national rate over the 2023-26 four-year span.
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