Macy’s warns of consumer challenges as credit card delinquencies rise.
Macy’s Warns of Rising Credit Card Delinquencies and Financial Pressure on American Consumers
Macy’s has recently reported a sharp increase in credit card delinquencies among its customers, signaling a rough patch for American consumers. Adrian Mitchell, Macy’s chief operating officer and chief financial officer, expressed concerns about the financial pressure consumers are facing as the Federal Reserve tries to combat high inflation by raising interest rates. The unexpected acceleration of credit card delinquencies among Macy’s customers has raised alarms.
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“While we had expected delinquencies to rise as part of our normalizing credit environment, the speed at which the increase occurred for us and the broader credit card industry since our first-quarter earnings call was faster than planned,” said Mr. Mitchell, acknowledging the negative impact on Macy’s second-quarter results and the anticipated rise in bad debt.
Macy’s CEO, Jeff Gennette, echoed these concerns, stating that Macy’s customers, especially those with incomes of $75,000 or less, are facing increasing financial strain. He highlighted the expiration of student loan forgiveness and the looming end of the federal repayment pause on student debt as potential headwinds.
‘Increased Rate of Delinquencies’
During the earnings call, Mr. Mitchell revealed that credit card revenues declined by $84 million year over year in the second quarter, primarily due to more customers failing to pay off their credit card debt. He expressed confidence in the long-term outlook but acknowledged the need for caution in the near term.
Macy’s is taking steps to mitigate the risk of rising delinquencies by working with its credit card partner, Citibank, to target higher-risk segments and reduce exposure. However, Mr. Mitchell emphasized that there are external factors beyond their control, such as student loans, auto loans, and mortgages, which could further impact consumer finances.
The warning from Macy’s comes as household borrowing in the United States has surpassed $17 trillion, with Americans inching closer to a debt-level “breaking point.”
Debt-Level ‘Breaking Point’
According to a study by WalletHub, the average American household is now just over $14,000 away from reaching a “breaking point” where they can no longer afford to pay off their loans. The Federal Reserve Bank of New York reported a slight increase in overall household debt in the second quarter, driven by a surge in credit card balances exceeding trillion.
WalletHub analyst Jill Gonzalez explained that the breaking point is determined by factors such as the debt-to-income ratio, disposable income, interest payments, and credit utilization. She warned that the average household is approaching a critical threshold and may face difficulties in managing their debt.
Credit Card Delinquencies Rise
Recent data from the New York Fed shows that credit card delinquencies are at an 11-year high. While the quarter-to-quarter trend appears less alarming, experts remain cautious about the overall impact on the economy.
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