The Lady on my Ferry Is Broke–She Just Doesn't Know It Yet

The American consumer keeps spending—but rising credit card balances and delinquencies raise questions about how long it can last.

KEY TAKEAWAYS

• The American consumer continues to spend aggressively despite falling consumer confidence and persistently high prices.

• Credit is increasingly playing a central role in sustaining consumer spending. Credit card interest rates averaging above 22% and rising balances indicate that a portion of consumption is being financed through expensive borrowing.

• Total household debt has reached $18.8 trillion, with credit card balances alone exceeding $1.28 trillion. Delinquency rates are rising steadily, suggesting that financial stress is gradually building beneath the surface.

• Consumer stress is unevenly distributed across income groups, and official statistics may understate the severity of the problem. Some households remain current on credit card payments while falling behind on other obligations.

• Markets currently reflect strong spending and economic resilience. However, they may not fully account for the risks associated with the growing reliance on consumer credit.

MY HOT TAKES

• Consumption remains the backbone of the US economy, but its durability depends heavily on the financial health of households. When spending is supported by rising credit rather than rising income, the sustainability of growth becomes uncertain.

• Credit conditions often deteriorate gradually before appearing in recession statistics. Monitoring early indicators such as delinquency trends can provide valuable insight before the broader economy reacts.

• Economic resilience should be acknowledged, but it should not prevent investors from evaluating potential vulnerabilities. A balanced perspective requires recognizing both the strength and fragility within consumer behavior.

• Financial stress is not evenly spread across society, which can mask problems in aggregate economic data. Investors who look beneath headline statistics may identify risks earlier than those relying solely on macro summaries.

• The relationship between spending and debt deserves greater attention in market analysis. If consumption slows suddenly due to credit stress, the impact on corporate earnings and markets could occur quickly.

• You can quote me: “Nearly one in four dollars of every purchase is effectively being borrowed at a rate that would have made a loan shark blush a generation ago.”

What are those? I have a really short ferry ride to my office, and I don’t waste it. I typically read through all of my favorite news outlets as the mighty Hudson River rushes beneath me. This morning–having concluded that every story was about the same nothing-new topics as yesterday–my browsing was complete ahead of schedule. I put my phone away and stared into the void. I was just getting my Zen on and I noticed something in the corner of my eye. A late-GenZ early-Millenial lady next to me was scrolling through an online shop. Actually, she wasn’t just scrolling, she was CONSUMING. Now, don’t get me wrong, I am not some creepy voyeur who stares at peoples’ phones, but I just could not help myself. I am–as you all know–obsessed with consumption, and this random stranger was doing her part to keep the dream alive. Folks, I wasn’t looking closely enough to see how much she spent (that would be creepy), but I did see how many times she double-pressed the button on the side of her iPhone–which is ApplePay, for you non-iPhone folks.

She was obviously gainfully employed, as no normal human would be on a ferry dressed up in business attire at that ungodly hour. That would have been that if I had not just travelled from visiting our Miami office just last night ( 🥱 ) and watched the same consumption pattern over and over while sitting in the airport. There is no stopping the American consumer. Now, my regulars know that I go out of my way to point out the contrary angle to everything. If I have learned one thing in my nearly 4 decades in finance, “never just follow the crowd without considering the case for the contra-angle” is a strategy that can increase your chances of survival.

You have heard me say things, like “the economy is healthy, but…” and “the labor market needs attention if we want to sustain this level of growth.” That said, I have been a bit concerned that consumer confidence is somewhat strained and that a growing number of companies are either announcing layoffs or have already simply stopped hiring. The magnitudes have not been large enough to kick off the alarms in the economic numbers yet, but if you know how to dig into those numbers, you can find signs and trends that will get your hackles up. Mine are. They have been.

How can consumers continue to consume at this pace given such low confidence AND high prices? Notice that I didn’t say “high INFLATION;” I am not as worried about inflation as I am about high prices themselves. I am aware that incomes are growing, but there are bigger structural changes occurring–consumption habits are changing. Additionally, based on lots of anecdotal data from big retailers’ earnings, we know that there is an uneven distribution of spending between income classes. Besides all this data–and there is a lot more of it–I am, myself, a consumer. I consume. I have bills, and I am a working man. With that, I am constantly confused as to how folks can afford to continue to consume! This morning, I was literally getting nervous–I mean it–as I watched this young lady spend so aggressively. My typical conclusion? Credit card debt.

And my faithful followers, I have the numbers to back me up–and they come straight from the people who print the money. 😉

The Fed's own data shows that the average APR on a credit card for accounts actually carrying a balance is 22.3%, and that is after six Fed rate cuts. Let that sink in. Go on, take your time. Nearly one in four dollars of every purchase is effectively being borrowed at a rate that would have made a loan shark blush a generation ago. And it gets worse. The Consumer Financial Protection Bureau just reported that the share of cardholders making only the minimum payment is at its highest level since at least 2015. Not paying it down. Not managing it. Minimum payment! That is the sound of a slow leak.

Now layer on this: total household debt in America just crossed $18.8 trillion. That is not a typo. The New York Fed confirmed it in their most recent quarterly report. Credit card balances alone are sitting at $1.28 trillion, and 4.8% of all outstanding debt, across every category, is in some stage of delinquency. These are not recessionary numbers yet. But here is something else I picked up over the almost 40 years in this business–by the time they become recessionary numbers, it is already too late to act on them.

The number I keep going back to is the credit card delinquency rate–also tracked by the Fed (see the chart below). The all-time peak was 6.77% in April of 2009, right in the gut of the financial crisis. Thankfully, we are not there, and I want to be clear about that. But here is what has my hackles up: that rate bottomed out at just 1.53% in mid-2021 and has nearly doubled since, climbing steadily to 2.98% as of the most recent reading. That is not a blip. That is a trend line with a direction and a velocity that mirrors the early warning pattern we saw in 2007 before things got truly ugly. And now layer on top of that the fact that consumers are carrying these balances at 22% interest, prices are still high, and this week–as if on cue–a fresh round of 15% global tariffs may kick in–according to Treasury Secretary Bessent. You want to talk about a squeeze? That certainly has the potential to tighten the vice grip on the household budget of every middle-income American who is already running on fumes.

Here is the part that does not show up in the headlines: the stress is not evenly distributed, and the official numbers are actually understating it. The National Foundation for Credit Counseling is forecasting consumer financial stress to hit a new all-time high in Q1 2026. And they flagged something that caused me to read and re-read it–a growing segment of consumers is not just overextended. They are technically insolvent. 🤨 They have income. They are showing up to work. They are, apparently, dressed in business attire and riding ferries. But after covering basic necessities, there is nothing left. Zero disposable cash flow. And here is the kicker: they are keeping their credit card payments current while letting everything else slip. Which means the real deterioration is being masked until the moment of default. As usual, the dam looks fine from the outside.

Now, I want to be clear about something, because I am not in the business of yelling fire in a crowded theater. The stock market is near all-time highs. Corporate earnings are holding up. GDP is growing. Wages–while not what they were at the 2021 peak–are still growing above 3% annually. These are not nothing. The American economy has a remarkable capacity to absorb punishment and keep moving forward. That resilience is real, and I respect it.

But here is my contra-angle, and I want you to think about it: the market is pricing in the spending. It is not pricing in what might be funding the spending. Those are two very different things. When the engine looks healthy because the car is moving, but nobody is checking whether the fuel is borrowed, and that is the setup that has preceded every major consumer credit unwind.

So the next time I am on that ferry, and I see that young lady double-pressing the side of her iPhone, I am going to smile because she is keeping the consumption dream alive, and I genuinely hope it stays that way for her. But I am also going to be watching those delinquency numbers. Because when consumers finally hit the wall, they do not telegraph it. They just stop. And when they stop, everything that looked healthy stops looking healthy in a hurry. Watch the cracks. They are already there.

YESTERDAY’S MARKETS

Stocks closed in the green yesterday after investors decided that things were “contained” in the Iran conflict–for now. ISM reminded us that the services economy is alive and well and that companies were optimistic about tariffs in wake of the Supreme Court ruling against the administration’s use of tariffs. Traders tested out a change of heart about software companies and they bought the dip. Crude slowed its epic climb but yields remained elevated.

NEXT UP

• Initial Jobless Claims (February 28th) came in at 213k, slightly lower than expectations and level with last week’s claims.

• Fed speakers today: Bowman and Goolsbee.

• Important earnings today: Burlington Stores, Kroger, BJ’s, Victoria’s Secret, Ciena, Gap, Costco, Marvell, and Samsara.