$17.8 Trillion - Highest US Household Debt Ever | Business Matters Full Broadcast (August 7)

U.S. household debt surges to a record 17.8 trillion. What happens if we hit a recession? We talked about that today on Business Matters. Good afternoon and thank you for joining me here today. I'm your host Don Ma. So all three major indexes ending in the red today after sitting in the green actually for most of the day. Now the Dow, S&P, down between 6 tenths and 8 tenths of a percent today. NASDAQ down a full percent. So the market's still relatively volatile after a major spike in volatility through the end of last week and into Monday's trading. We have the latest developments on the unwinding of the yen and carry trade later in the show. So big stocks making a move today. So NVIDIA down 5 percent. It's sort of like a trading like a meme stock. Tesla down around four and a half percent. And Shopify shares popping a massive 17.8 percent today. The e-commerce giant topping earning expectations for the second quarter. So Shopify sells software and services to merchants who run businesses online. It cited strong demand despite mixed consumer spending. Shopify reported that the total volume of merchandise sold on its platform jumped 22 percent in the quarter. And Disney shares falling today on weak earnings down just shy of four and a half percent. So this is despite its streaming business becoming profitable for the first time and a strong showing in theaters for Inside Out 2 and Deadpool and Wolverine. So the pressure comes from some weakness in domestic theme parks. Disney warned that moderation in demand at U.S. parks could linger for the next few quarters. And as CVS Health cut its forecast for a third time, its shares ending over 3 percent in the red today. The company is being dragged down by rising costs from its health insurance business. Income from its health business health benefits business plunging nearly 40 percent in the quarter. So after earnings, shipper Maersk shares slipping almost three and a half percent. It's anticipating a slowdown. The company said customers stocked up on goods in response to Red Sea attacks that sent global container demand up in the first half of the year. Maersk expects that to slow down now. OK, so 17.8 trillion dollars. That's the latest number for U.S. household debt, according to the Federal Reserve Bank of New York. Auto loan and mortgage debt rose and credit card debt reached an all time high. But overall delinquency rates stabilized from the previous quarter. Consumer spending powers two thirds of the U.S. economy. But now, as well as going deeper into debt, Americans are also tapping into their savings to make ends meet. Earlier, I spoke to Vance Ginn. He's a former White House chief economist and now the president of Ginn Economic Consulting. Here's what he thinks of the high levels of household debt. Seventeen trillion dollars. Seventeen point eight, to be exact, in household debt. So, I mean, with that rising from the last jobs report, we can see that wage growth slowing down. And now there's talks of potential recession on the horizon, which could put further downward pressure on wages. Tell me, does that concern you? Well, it's a pleasure with you and it does concern me. I mean, we're seeing larger and larger debt burdens for Americans across the country. At the same time, we may be going into a pretty severe recession, if not economic slowdown. We've already seen job creation has been slowing down. Wage growth, as you mentioned, slowing down. You know, wages, average weekly earnings are still down one percent compared to February of twenty twenty one. So people are finding that they can't afford as much as what they could even before then. And so they're dipping into their savings and when they don't have enough in savings anymore, they go into debt. And so we're going to see massive debt. Credit card debt is up to one point one trillion dollars. You see a lot of mortgage debt and other things that are happening. And with interest rates not looking like they're going to go down for that, you know, for at least the next month or so, I think we're going to continue to see higher and higher debt payments, which is going to hurt a lot of households and their budgets across the economy. Right. And that's just one piece of the puzzle here. We also have record levels of government debt. Right. So that combined with household debt, if we do, in fact, go into a recession, would that make it more difficult to get out of it? Oh, definitely. I mean, it definitely will make it more difficult whenever you look at jobs or wages and a lot of other factors that go along with the recession. And look, inflation is not out of out of the picture either. It's still running hot at about two point five, two point six percent compared with how the Federal Reserve like to look at their PC index. And so I think all of this is exacerbating the problems that Americans are feeling across the country. And when you look at the national debt, thirty five trillion dollars, we're paying over a trillion dollars just on net interest payments on the debt because interest rates have been increasing. We have a larger amount of debt that we're paying off that is influencing all of our lives. You may not think about that. They do. But I mean, this contributes to higher taxes, higher interest rates, higher inflation, not only for the future, but for today. And so this is exacerbating the problems that are going on across the economy. And can you elaborate more on this this huge amount of debt and what is that impacting when it comes to our economy here? Well, you put both of these together. We've got a lot of household debt. We've got a lot of federal government debt. And we're not even talking about Social Security, Medicare and the unfunded liabilities that that has over one hundred trillion dollars over the upcoming future. This is a massive amount of debt. And what we see is that an economy works better whenever it's fully functioning from investments, from a faster growing private sector, not when government's growing as fast as what it is today, because that puts a drain on the public, on the private sector as a whole, because they're the ones that are paying for those those government positions and everything else. One thing I am concerned about, though, is that given all this debt and everything else in the Federal Reserve balance sheet being seven point two trillion, there's a lot of folks who want to think that we need to spend more by Congress and for the Federal Reserve to bring more money to get us out of this potential recession. When I think we kind of need a recession, unfortunately, hopefully a short term. But you need some corrections in the marketplace to come out stronger for the future. We've got to learn from our past mistakes and make sure that we're moving to the future for a brighter, brighter path ahead. Some have argued that America is going bankrupt. Would you say that is exaggerated? I don't think it's exaggerated. I mean, when you look at net interest payments in the debt just being over a trillion dollars and you look at what's happening in Social Security, you look at what happened with Medicare and neither major political party, Republicans or Democrats, seem to want to touch those. They've become politically just off the table. And that is that is a huge issue for the future of our country, because it puts more debt on all of us, more inflationary pressures, more higher interest rates. And so we don't get control of government spending, which is where the crisis is. Then we can't get a better and brighter future for all Americans. And I want to let people prosper. I want everyone to prosper. But I think the way you do that is by unleashing the private sector economy through free market capitalism, with pro growth policies of less spending, lower taxes, lower regulations and less money printing. And we'll have a much robust and vibrant economy for the future. OK, just one last thing here. We're already very deep into this situation. So the question is, is there a way to avoid the potential debt crisis? Initially, I don't think there is, especially given that so much is off the table. And to your point that we're already so deep into it, that there is going to be more hurt to come before it's going to get better, unfortunately. And I'm an optimist. I don't want it to be that way. But when you drive this situation to where it is today, unfortunately, you reach the point of no return. And I think that's where we're at now. So we're going to see some major obstacles moving forward. But I do think, you know, that if each family can get their own budgets in order, make sure you don't overspend, try to dip into all your savings and prepare for whatever is going to come for the future, they'll be in a much better situation no matter what the future holds from Congress to the Federal Reserve and others. All right, Vance, thank you very much for your time today. Hey, thank you so much. Now, the biggest surprise of the day, Airbnb, its share is down over 13 percent today. The company says rental demand in the U.S. is slowing down. We talked with landlords as well as travelers to find out what they're seeing. Airbnb reports weakening interest in renting. Travel blogger Jen Ruiz says she believes public sentiment has dramatically changed. It's gotten so restrictive with things like you have to do chores before you leave. You have to do the dishes and take out the trash and strip the beds. Ruiz is a travel expert and author of 12 Trips in 12 Months. She says people used to think of Airbnb as a cost-friendly alternative to hotels. Now, she says it's become more expensive and less convenient. And sometimes with an Airbnb, if you're not staying for a few nights, that cleaning fee could actually be more than the rate that you're paying to rent the Airbnb, which is what frustrates people. Ruiz says the price on the website may not actually be the final price you pay, pushing people away from Airbnb even more. There has been softening in the market. People are going back to a more balanced market of mix of hotel and Airbnb. Nicole Brown runs a number of Airbnbs. She says it was popular during the pandemic because of hotel COVID protocols. Now things are back to normal and there's too much supply. I think some of the Airbnbs that are being put out there don't really have any pizzazz or flash to them. I think people just got in because they wanted to get in and make some money. Brown believes the people who are successful are the ones who create an experience. I'd like to welcome you to the Earth and Sky Dwellings. Tyler Kuhn's firm Savvy Realty focuses on the experience. Business is booming. Those top 10 percent of short-term rentals that have great amenities, they have great design, and they're incredibly well thought out, those are actually doing more numbers than we've ever seen before. Kuhn says the bottom 90 percent of rentals that haven't matured into an experience are not doing as well while those investing in experiences are. We've seen people invest three or four hundred thousand dollars into design and amenities in one property and actually have an incredible return on investment. He says the industry is maturing. Big groups can now rent out one location making it easier to travel together whether it's family trips, weddings, or a big group of friends. And important news for investors coming out of Japan today. The country's central bank signaling it will hold off raising interest rates while markets are quote volatile. So normally Japanese interest rates are not something we're all that worried about. But after the Bank of Japan raised rates for only the second time in 17 years last week, it sent global markets into a tizzy. Here's Bill Fitzpatrick. By a Japanese carry trade that is beginning to unwind, which of course is really borrowing in the cheaper currency, the Japanese yen, and purchasing higher yielding assets whether that's in the U.S. or elsewhere. But that's not as attractive. With the U.S. lowering rates and the Bank of Japan raising rates, you get an unwind there and you're susceptible to downturns like we had on Monday. Now Japanese stocks fell 12 percent on Monday and today's announcement from the Japanese central bank suggesting the bank is now between a rock and a hard place. So on one hand it needs the yen to stop weakening against the U.S. dollar or else inflation and most importantly the price of imported oil is going to put massive pressure on Japanese homes and businesses. But on the other hand, if the bank raises rates, its stock market and global stock markets could take another massive hit. JP Morgan says the yen carry trade unwind is only 50 percent done. We'll be following this very closely, so stay tuned. And with the U.S. central bank poised to start lowering rates, the 30-year mortgage rate have dropped to their lowest level since May last year. According to the Mortgage Bankers Association or MBA, the 30-year fixed rate dropped 27 basis points last week to 6.55 percent. In response, the MBA says refinancing applications rose sharply to the highest level in two years. The Fed signaling a slowing economy and labor market could mean a rate cut as soon as September. The Labor Department's monthly job report showed that the unemployment rate jumped in July. JP Morgan CEO Jamie Dimon today saying again that he sees a recession on the horizon. And now joining us is Ernest Chee. He's the owner of Ernest Chee Real Estate. Ernest, how are you doing today? I'm doing well, thank you. How are you? I'm good, thank you. So looks like mortgage rates seeing their biggest drop in two years. And according to Realtor.com as well, says price cuts are also at a two-year high. So I want you to tell us, are falling rates enough to stem price cuts? What are you seeing? I'm seeing that buyers are actually coming on off the fence now. They're willing to come out and take a look at the listings that are available. I'm also getting a lot of calls from sellers who are now willing to look at what's on the market for themselves and are willing to list their property for sale. So in terms of prices, are they in general going up or are they staying put or are they declining in your view? I would say they're staying put. They're staying put. Okay. So I mean, sellers, are they coming to terms with the possibility that their home maybe not increase? Maybe they're coming to terms that they have to sell for less. Tell me more about this. I think that every each individual seller has their own needs. So depending on their own personal needs and urgency will determine whether they'll reduce their price, whether they'll be willing to give a seller's concession and perhaps stimulate the market that way. In your opinion, is it a seller's market or buyer's market right now? So I would say right now it is a seller's market because of low inventory. So normally we think of a seller's market where there is less than six months of supply. However, there isn't enough inventory. And because of that, I believe it's a seller's market. Okay. Can you elaborate a bit on that? Why do you think this way? Because there's not enough inventory, right? So buyers are actually competing for listings. We still have bidding wars. We still have best and final offers. We still have sellers who are not willing to budge on the listing price. So it's a matter of finding the right buyer for a seller and also finding the right seller for a buyer who's willing to negotiate. I think we all know that buyers are looking for the best deal. And usually they think it's a lower price, but it's not always the lower price. It's always the best scenario for their budget and for their family or their individual needs. Okay. On the point of low inventory, do you think that falling mortgage rates could help with that? Why are we seeing low inventory? So from my personal experience, I see that the inventory is low because sellers will then have to find their new home at higher interest rates. So typically, if someone purchased, let's say, in the last five or six years, their interest rate is going to be a lot lower than what interest rates that they're looking at now. And so that's what keeps sellers hesitant from selling at a lower market rate than what they've seen on the news where, you know, you see people advertising that they're bidding multiple offers, things selling, selling $100,000 over asking. I think that those days are over, but there are still some sellers who are still holding off on the higher price. Do you think maybe inventory could increase if the Federal Reserve cuts their benchmark rate and then potentially lowering mortgage rates even more? Would that increase the inventory? Absolutely. Absolutely. That would not only increase inventory, but that would also stimulate buyers, which in turn would actually raise prices again. So it's like the lower the interest rate, the higher the price. All right, Ernest. Thank you very much for coming on today. It was a pleasure. Thank you. Okay, moving on from that, several U.S. natural gas producers are preparing to cut their production in the second half of the year. And this comes after prices stank nearly 40 percent in the past two months. Prices fell as demand softened with cooler than expected temperatures. Waha prices have turned negative a record number of times this year. EQT and Apache have both curtailed production. Chesapeake Energy plans to defer some well completion while the gas market is weak. All right, heading on to break now, but coming up later, big American brands are struggling in China. Why is this happening and what is the cause? Find out after this. Don't go away. And policymakers in China may have to confront its risk of relying on trade. Export growth missed expectations last month in dollar terms. So the world's second largest economy banking on trade to lift its economy. By the way, that has been dragged down by a real estate downturn and local government debts. In contrast, imports rose sharply and economists noted that imports are being driven by high tech, semiconductors and auto parts for EVs and not household demand. China's imports of major commodities continue to lose momentum last month. Crude oil dropping to its lowest in nearly two years. And the struggles for American major brands in China continue. And TD Charm Marshall takes a look into the supply chain issues and growing competition from Chinese brands. Earnings reports for several big name American brands highlight struggles in the Chinese market. Johnson & Johnson saying China is a very volatile market. Apple said China's sales falling by 6.5 percent year on year. McDonald's saying consumer sentiment in China is quite weak. China's economy is going through growing pains at the moment. They've had a systematic real estate bubble essentially. The stock market is in a little bit of disarray. And so that's essentially decreased the purchasing power of many Chinese consumers. It's decreased their confidence in the economy. And they're not as confident that their jobs are going to be there in the future, that their incomes are going to keep increasing. On Wednesday, German sportswear maker Puma shares dropped to 2018 lows, citing higher freight costs, currency headwinds and continued muted consumer sentiment in China. Yang says American companies have also faced increased competition from domestic Chinese brands over the years. So initially when American brands entered the market, they were on challenge. This was back when China didn't have its own brands to compete. Sharpie pen maker Newell Brands is moving some production of kitchen appliances out of China and has relocated manufacturing for its writing business to Tennessee. Its CEO saying uncertainty around tariffs ahead of the U.S. presidential election was the catalyst for the move. But not all brands are struggling in China. Ralph Lauren beat first quarter profit estimates on Wednesday. Steady demand for its pricey denims and polo shirts in Europe and China helped balance out slower sales in the U.S. Ralph Lauren's quarterly sales in Europe and Asia grew from last year. A stark contrast from lackluster earnings reports from European rivals LVMH, Hugo Boss, Burberry and Gucci. Sean Marshall, NTD News. Now, gardeners, listen up. The EPA has issued an emergency suspension of DCPA, also known as Dactyl. It's a herbicide used to control weeds in grasses and crops, particularly greens like kale and broccoli. So the suspension comes after the agency cited a serious risk to pregnant women and their unborn babies. So exposure can result in low birth weight and other developmental issues. The agency said levels may remain unsafe for 25 days or more after application. And this is the first time the EPA has used its emergency suspension authority in 40 years. In 1983, the agency banned a pesticide known as EDB. All right. And that's all the stories we have for you today. Thank you very much for watching. If you have any feedback for the episode, please feel free to let me know. You can email us at business at NTD.com or leave a comment online. I do read them. And don't forget, business matters. Goodbye.