Credit Sesame’s personal finance news roundup February 3, 2024. Stories, news, politics and events impacting personal finance during the past week.
- US saw massive job growth in January
- Fed to allow emergency lending program to expire in March
- Economists are less optimistic than investors
- Credit report shows dependence on borrowing rose in 2023
- Liquidation of Chinese real estate giant could have global aftershocks
- Payday advance programs grow in popularity – and costs
- Credit card delinquencies and balances continued to grow in December
- Last year’s bank failures cause new problem
- Fed leaves interest rate target unchanged
US saw massive job growth in January
The 2024 January employment report started the year with a bang, showing that 353,000 jobs were added in the past month. That’s well above the average monthly job growth of 255,000 last year and the best month for new jobs since last January. In addition, the previous estimates of job growth for November and December were revised upward to 126,000. With the favorable job growth, January of 2024 became the 20th consecutive month in which the US job market has set a new record for the total number of people employed. The strong job growth in recent months supports the Federal Reserve’s decision to take a cautious approach to lowering interest rates. See the Employment Situation report at BLS.gov.
Fed to allow emergency lending program to expire in March
The Federal Reserve announced that it will allow the Bank Term Funding Program (BTFP) to expire on schedule this March 11. The BTFP was implemented to help maintain bank liquidity when bank failures threatened to create panic in the banking system early last year. The BTFP allowed banks to use the face value of Treasury securities as borrowing collateral, even though rising interest rates had driven the market value of many of those securities below face value. This prevented banks from losing access to funds due to temporary fluctuations in the prices of their reserves. The fact that the Fed is allowing the program to expire on schedule indicates that the banking system has stabilized over the past year. However, the BTFP has been criticized for offering overly generous terms that allowed banks to earn a risk-free profit at the government’s expense. See article at Reuters.com.
Economists are less optimistic than investors
A Reuters poll of global economists found their forecasts are more cautious than the aggressive investments reflected in recent financial market performance. The consensus among economists is for a global growth rate of 2.6% in 2024. That would be a solid but unspectacular year of growth. In contrast, financial markets have rallied on speculation that central banks will make deep rate cuts during the year. Global growth is expected to vary a great deal by nation. The United States and India are predicted to be among the strongest growers in 2024. Expectations are for growth to lag in the eurozone and China. See article at Reuters.com.
Credit report shows dependence on borrowing rose in 2023
The VantageScore CreditGauge report showed that credit card borrowing increased last year, and a growing number of consumers are having trouble keeping up with their payments. Nearly 50% of credit card customers regularly carry a balance. The average balance grew by 8.2% last year to $6,400. Credit utilization – the amount of customer credit limits currently in use – rose to 31.7% last year. New credit card and personal loan originations continue to grow in December. Meanwhile, year-over-year delinquency rates were up for auto loans, credit cards, personal loans, and mortgages. See news release at PRNewswire.com.
Liquidation of Chinese real estate giant could have global aftershocks
A court in Hong Kong has ordered Evergrande, a massive real estate finance company, to liquidate assets to pay its debts. The court order comes two years after the firm defaulted on debt payments. Evergrande has repeatedly failed to come up with a workable restructuring plan. While this order will only directly affect Evergrande’s operations in Hong Kong, there are concerns about the widespread impact on investors. With over $300 billion in debts, Evergrande’s inability to pay its creditors could also put many of those creditors in financial distress. See article at Sky.com.
Payday advance programs grow in popularity – and costs
Programs that allow workers to access the money they’ve earned in advance of payday have grown in popularity in recent years. The annual amount of pay being accessed early now exceeds $9 billEmployers often offer these programsoyers as a benefit, but some are available directly to consumers. The concern is that frequent users can find various fees translate to the equivalent of a 330% annual interest rate on pay accessed early. See article at NBCBayArea.com.
Credit card delinquencies and balances continued to grow in December
The latest Credit Industry Snapshot from TransUnion shows that the percentage of late payments on credit cards grew for a seventh straight month in December. The average balance on credit cards rose by $203 to $6,343, while the average credit limit increased by the same amount to $26,416. Delinquency rates also rose for auto loans, mortgages, and unsecured personal loans. See details at TransUnion.com.
Last year’s bank failures cause new problem
After buying out one of the regional banks that failed last year, New York Community Bancorp is facing financial trouble due to the acquisition. The large regional bank’s stock tumbled when it announced a surprisingly sizeable fourth-quarter loss plus a cut to its dividend. The bank cited the need to increase its loss provisions as a reason for the earnings setback. The bank said it set aside more money because of deteriorating credit conditions and because the acquisition put it above a regulatory size threshold requiring larger reserves. See article at Yahoo.com.
Fed leaves interest rate target unchanged
The Federal Reserve announced on January 31 its decision to leave the Fed funds rate in a target range of 5.25% to 5.50%. In its comments, the Federal Open Market Committee (FOMC) noted the economy’s solid growth recently, and the fact that inflation has been easing. However, the FOMC reiterated its goal of lowering inflation to 2%. This aggressive goal will likely make the FOMC cautious about the pace of interest rate cuts this year. See news release at FederalReserve.gov.
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