azcentral.com
Signs of consumer trouble
Hal Mattern
The Arizona Republic
June 10, 2001
Clancy Jayne doesn't have to keep track of the unemployment rate
or the various other financial indicators to gauge the state of
Arizona's economy.
He just has to check the odometer on his 2-year-old Saturn.
As of Friday, it registered 236,006 miles, an indication that the
slumping economy is taking its toll on some Arizona residents.
Jayne piled up most of those miles driving around Arizona serving
delinquency notices on homeowners behind on their mortgage
payments and credit-cardholders who have failed to keep up with
their monthly bills.
"Normally, we serve about 100 credit-card delinquency notices a
month," he said. "Now, if we're not doing 1,000, we're pretty close to
it. It's great for our business, but there is a definite slowdown in
people paying their bills."
Jayne's experience doesn't surprise economists, who have been
warning for months that consumers are spending beyond their
means, racking up debt at a dizzying pace. The federal government
reported last week that outstanding consumer credit rose
11.2 percent, or $14 billion, in April, reaching $1.6 trillion.
Credit-card debt grew by more than 17 percent, far exceeding the
rate of income growth, said Michael Burt, an economist for
Economy.com who tracks household debt.
"Despite the slowing economy, consumers continue to acquire debt
at an astounding pace," Burt said.
He said people are using their credit cards to maintain the lifestyles
they grew accustomed to during the booming 1990s, even if they
have lost their jobs or their income has stagnated or declined.
Overall, Burt said, Americans are spending more than they are
earning, resulting in a negative savings rate.
"Consumers are going to reach a breaking point," he said. "If they
are borrowing to maintain their lifestyle, sooner or later it will catch
up with them and they will have to cut back on their spending."
If the trend continues and it spurs a mass reduction in consumer
spending, there is concern that it could further harm the nation's
fragile economy, which is teetering between recession and recovery.
There are signs that many consumers have already reached the
breaking point:
• Bankruptcy filings were up 18 percent nationally during the first
quarter of this year, and more than 25 percent in March and April
compared with last year. In Arizona, bankruptcies have been up by
as much as 32 percent in recent months.
• The number of people with credit problems stemming from
unemployment or job loss has risen by 16 percent so far this year,
according to the Phoenix-based Consumer Credit Counseling
Services Southwest.
• Delinquency rates for both credit cards and home mortgages
began inching up last year after several months of stability or
decline. Figures are unavailable for the first quarter of this year, but
industry officials expect delinquencies to rise substantially.
Jayne, a north Valley civic activist who operates Clancy Jayne
Inspections and Foreclosures, said a national trade group
representing the real estate field services industry warned that
delinquency rates could rise by 18 to 20 percent later this year.
"But they already are up in Arizona," he said. "What that means is
that people have been living paycheck to paycheck. Maybe they
have lost their overtime pay, and gas prices have gone up. Because
they are so close to the edge, they are having to slide on their bills."
Many of the debtors Jayne deals with wind up filing for bankruptcy
protection, a fact that is reflected in the number of Arizona cases.
Bankruptcy filings ranged from 2,300 to 2,500 a month over the past
three months, increasing by 22 percent to 32 percent from the same
period last year.
Kevin O'Brien, clerk of the U.S. Bankruptcy Court in Phoenix,
attributed the rise to the slowing economy and concern about a law
pending in Congress that would make it harder for individuals to
declare Chapter 7 bankruptcy to wipe out their debts.
"It's happening all over the West, and probably in the East and
Midwest, too," O'Brien said. "I've been here 15 years, and I've never
seen filings take off like this."
The number of people seeking help in managing their debt also has
been rising to record levels, according to John Erickson, president of
Consumer Credit Counseling Services Southwest, which has offices
in Arizona and New Mexico.
Erickson said that more major national financial institutions having
been referring delinquent customers to the company, and a growing
number of its clients attribute their credit problems to their being out
of work.
"We're definitely busier than ever," he said.
Reach the reporter at hal.mattern@arizonarepublic.com or
(602) 444-8652. |
