Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Let’s start with the good news. Even after a year-plus of painful price increases, rising borrowing costs and a steady drumbeat of dire warnings about the state of the American economy, household finances are on relatively solid footing. Revised GDP figures released later this morning are expected to show the economy grew by 2.9 percent during the fourth quarter. Wages are up, unemployment is down and as such — per the Federal Reserve’s Open Market Committee minutes released Wednesday — the “credit quality of households also remained strong, on balance.” Here’s the less-good news: There are “some signs of deterioration.” Delinquencies on Federal Housing Administration mortgages, though still near pre-pandemic lows, are starting to tick upward. The New York Fed is seeing signs that we could experience a “rapid return” to pre-Covid rates of lapsed auto and credit card bills, particularly among younger borrowers. Bank officers surveyed by the Fed expect more consumers to put off or completely forego loan payments as we move further into 2023. Those tiny cracks in the foundation affect how households view the economy. And as more households feel the pinch — both from inflation and the elimination of whatever financial cushion they have — pessimism starts to grow. A new survey from the financial services company Bankrate found that more than one-third of U.S. adults — 36 percent — say their credit card debt now outweighs what they have in emergency savings. That’s a record high in 12 years of polling. “These data points are reflections of aspects of financial fragility,” Bankrate Senior Economic Analyst Mark Hamrick told MM. “With high and sustained inflation, savings have been drawn down. The outlook is that it'll probably continue to be drawn down further.” “That is an inelegant mix. And it’s obviously prompted a good number of individuals to have to resort to credit card debt,” he added. Another confounding factor: The Fed’s aggressive series of rate hikes to stamp out inflation have corresponded with higher borrowing costs for credit cards. Anyone who’s relied on plastic to keep pace with rising costs is taking a bigger hit if they fail to pay their bills on time. Biden officials are quick to note that while there’s been some weakening in certain metrics, household finances – as the Fed minutes clearly stated – remain strong on balance. “There are a number of economic indicators that show a strong labor market and resilient economy — from the more than 500,000 jobs created just last month to the lowest unemployment in 53 years to real wages higher than they were seven months ago. Compared to pre-pandemic averages, households remain better off on a number of key metrics of economic security. And as we’ve long noted, we should expect a cool down as we transition from rapid recovery to stable and steady growth,” White House Assistant Press Secretary Michael Kikukawa said in a statement. Any small uptick in delinquencies, particularly from historically low levels, likely reflect an expansion of credit to those who’d been previously excluded from credit markets. The question is how long that problem will be limited to subprime borrowers. As rates continue to climb, the amount of disposable income that households use to pay down their debts is “likely to surpass and remain much higher than pre-pandemic levels,” EY Parthenon Chief Economist Gregory Daco wrote in a market commentary on Wednesday. That will represent a “real financial strain on households and consumer spending capacity.” IT’S THURSDAY — And your MM host just put his rewards card in a locked drawer. Have tips, gossip or scoops? Let Sam know at ssutton@politico.com and Zachary at zwarmbrodt@politico.com.
| 
