Connect with us

Markets

Are American Consumers Taking On Too Much Debt?

Published

on

How much consumer debt is too much?

Today’s infographic uses extensive data from Equifax to try and answer this question.

We put consumer debt in a historical context, while providing an in-depth look at the latest numbers on different categories of debt such as student loans, credit cards, and mortgages to see how they compare.

American Consumer Debt

In the United States, there are three broad types of debt in the spectrum: government, corporate, and consumer debt.

Government debt consists of federal, state, and municipal debt, and adds to a total of 136% of GDP. Meanwhile, corporate and consumer debt, which together constitute private debt, amount to 197% of GDP.

The History of Consumer Debt

Before diving into the numbers, there are two historical developments worth mentioning that have greatly influenced consumer debt.

The first is the rise of consumer credit through the 20th century.

If you go back to the 1800s, it was a different place:

  • Information moved as fast as a boat.
  • 90% of Americans lived in rural areas.
  • 75% of Americans were involved with agricultural production.
  • There was a stigma around borrowing to buy luxury items, and some saw it as immoral.
  • Credit was only used in essential cases, such as borrowing money to buy seeds for farming.
  • Credit history was oral and based on personal reputation.

Today is vastly different. Information travels instantaneously, the economy is diversified, computers are everywhere, and factories pump out cheap goods that people want to buy. Credit history is universal, and 72% of Americans have at least one credit card.

For more information about the development of credit in the 20th century, check out this motion graphic video on the history of credit cards.

The second factor that greatly influenced today’s consumer debt situation was government intervention in the mortgage markets between 1949 and 2000.

Agencies such as the Federal Housing Administration (FHA), Ginnie Mae, Fannie Mae, and Freddie Mac were active with the following objectives:

  • Insuring mortgages
  • Providing liquidity to the mortgage finance system
  • Stabilizing the mortgage market
  • Expanding the secondary market for mortgages

Between 1949 and 2000, home ownership increased from 54% to 64.7%.

However, that coincided with increases in debt-to-income ratios (20% to 73%) and mortgage debt to household assets (15% to 41%).

The Composition of Consumer Debt

According to Equifax, U.S. consumer debt is at $12.44 trillion. Here’s how it breaks down:

TypeDebtPercentage
Mortgage$8.96 trillion72.0%
Student Loans$1.27 trillion10.2%
Auto Loans$1.14 trillion9.2%
Credit Card$0.74 trillion6.0%
Other$0.33 trillion2.6%
Total Consumer Debt$12.44 trillion100.0%

Consumer Debt Trends

1. Mortgage Debt

Mortgage debt, by far the largest category of consumer debt, peaked during the 2008 Financial Crisis at close to $10 trillion. Today, however, it makes up 72% of total consumer debt at $8.96 trillion.

This debt has been partially fueled by the lowest interest rates in history, which have put mortgage rates at all-time lows.

Since 2010, mortgage defaults and delinquencies have both trended down back towards normal levels.

2. Student Loans

For the first time in history, consumers are more in debt to student loans than any other type of non-mortgage debt.

The amount of student debt per person has steadily increased each year – especially for young people. For 18-25 year olds, student loan debt per person has increased from $4,637 in 2005 to $10,552 in 2015. The average young millennial now owes over 60% of of their non-mortgage debt to student loans.

In total, Americans now have $1.3 trillion in student debt, spread between 44 million people.

3. Credit Cards and Private Label Cards

Credit card spending has been steadily increasing since the Financial Crisis, but it has not yet hit pre-crisis levels yet. As it stands, Americans have $665.8 billion in credit card debt spread between 391.9 million cards.

Debt from private label cards, on the other hand, has surpassed pre-crisis levels. Private label cards are typically used to provide credit at department stores, furniture stores, and other retail locations. It is now at $77.4 billion, though this is relatively small compared to other credit card debt that exists.

4. Auto Loans

Total outstanding balances on auto loans and leases have increased 9.3% year-over-year to $1.14 trillion – putting it at all-time highs and making it the third largest consumer debt market overall.

However, auto loan delinquencies have been generally trending down over recent years.

Putting it All Together

As far as non-mortgage debt goes, consumers have never been more indebted.

However, mortgage debt is what really moves the needle for total debt numbers – and that is still not near levels seen during the Financial Crisis.

TypeAmountAll-time Highs?
Mortgage$8.96 trillionNo
Student Loans$1.27 trillionYes
Auto Loans$1.14 trillionYes
Credit Card$0.67 trillionNo
Private Label Cards$0.08 trillionYes
Other$0.33 trillionn/a

Comments

Markets

The 20 Most and Least Profitable Companies, Per Employee

The U.S. companies on the Fortune 500 boast $1.2 trillion in combined profit—but which bring in the best and worst profit per employee?

Published

on

The 20 Most and Least Profitable Companies, Per Employee

The Fortune 500 is an elite club of the biggest American businesses, which combined to generate profits of over $1.2 trillion in 2019.

But how much profit do these companies make on a per employee basis?

This visualization uncovers the answer by comparing the 20 companies with the most and least returns per employee, using calculations from Tipalti (based on the Fortune 500 list).

Top 20: Most Profit per Employee

Diving right in, the companies that make the most money per employee may surprise you.

Housing giants Fannie Mae and Freddie Mac take two of the top three spots, bringing in $1.9 million and $1.0 million per employee respectively in 2019.

The two U.S. government sponsored enterprises (GSEs) are major players in the secondary mortgage market, buying and repackaging nearly half the mortgages in the country. The duo was allowed to retain their profits as of October 2019, instead of returning them to the U.S. Treasury.

CompanySectorProfit per EmployeeProfits ($M)Employees
Fannie Mae
(Federal National Mortgage Association)
Financials$1,888,000$14,1607,500
KKRFinancials$1,448,699$2,0051,384
Freddie Mac
(Federal Home Loan Mortgage Corporation)
Financials$1,046,721$7,2146,892
NRG EnergyEnergy$969,631$4,4384,577
EOG ResourcesEnergy$943,103$2,7352,900
BiogenHealth Care$795,811$5,8897,400
Blackstone GroupFinancials$705,680$2,0502,905
ConocoPhillipsEnergy$691,250$7,18910,400
Enterprise Products PartnersEnergy$628,904$4,5917,300
VisaBusiness Services$619,487$12,08019,500
Simon Property GroupFinancials$560,533$2,1023,750
Gilead SciencesHealth Care$456,441$5,38611,800
OneokEnergy$443,789$1,2792,882
FM GlobalFinancials$443,391$2,4795,591
MastercardBusiness Services$436,452$8,11818,600
Cheniere EnergyEnergy$423,529$6481,530
FacebookTechnology$411,308$18,48544,942
AppleTechnology$403,328$55,256137,000
Cincinnati FinancialFinancials$384,038$1,9975,200
Massachusetts Mutual Life InsuranceFinancials$373,989$3,7019,896

Apple employs 137,000 people—the largest workforce by far among the 40 companies profiled—but still makes $403,328 per employee. Facebook is the only other tech giant to bring in more money per employee at $411,308.

Bottom 20: Least Profit per Employee

On the other end of the spectrum, Uber is one of the most well-known companies currently bleeding profits, losing $316K per employee. In fact, the ride-hailing service lost approximately $1.8 billion in the second quarter of 2020 alone.

CompanySectorProfit per EmployeeProfits ($M)Employees
ApacheEnergy-$1,123,301-$3,5533,163
EnLink MidstreamEnergy-$825,830-$1,1191,355
Brighthouse FinancialFinancials-$556,391-$7401,330
PG&EEnergy-$332,870-$7,65623,000
Frontier CommunicationsTelecommunications-$322,706-$5,91118,317
Uber TechnologiesTechnology-$316,208-$8,50626,900
HessEnergy-$229,859-$4081,775
CotyHousehold Products-$199,158-$3,78419,000
Devon EnergyEnergy-$197,222-$3551,800
Altria GroupFood, Beverages & Tobacco-$177,123-$1,2937,300
National Oilwell VarcoEnergy-$175,927-$6,09534,645
Equitable HoldingsFinancials-$171,584-$1,73310,100
Chesapeake EnergyEnergy-$133,913-$3082,300
CenturyLinkTelecommunications-$123,976-$5,26942,500
MosaicChemicals-$84,683-$1,06712,600
AlcoaMaterials-$81,522-$1,12513,800
Targa ResourcesEnergy-$77,985-$2092,680
Voya FinancialFinancials-$58,500-$3516,000
WayfairRetailing-$57,992-$98516,985
Occidental PetroleumEnergy-$46,319-$66714,400

COVID-19 has also had an intense effect on some of the companies at the bottom end of the profit per employee spectrum. Chesapeake Energy and Frontier Communications are just two examples that have filed for Chapter 11 bankruptcy in recent months—they each lost $134K and $322K per employee in 2019 respectively.

I’m pretty confident we will see more bankruptcies than in any business person’s lifetime.

James Hammond, CEO of BankruptcyData

Profit per Employee by Sector

When all the companies in the Fortune 500 are taken into account, sector-specific numbers reveal interesting trends.

Financials bring in the most profit per employee at $116K, while Food and Drug Stores see 17 times less profit at $6.7K per employee. In fact, eight out of the top 20 most profitable companies are found in the financial sector.

SectorProfits per EmployeeProfits ($M)Employees
Financials$116,228$378,4453,256,067
Technology$87,532$252,8362,888,490
Energy$85,547$75,410881,505
Media$57,947$21,634373,333
Health Care$54,679$145,1662,654,872
Telecommunications$50,636$38,251755,417
F&B incl. Tobacco$41,946$42,9241,023,317
Business Services$39,354$36,835936,000
Chemicals$27,977$11,328404,888
Apparel$26,154$7,776297,300
Industrials$25,827$27,0061,045,675
Aerospace & Defence$24,793$23,903964,100
Household Products$24,504$10,415425,038
Transportation$21,762$32,4541,491,358
Engineering & Construction$19,648$6,773344,716
Materials$13,408$6,024449,252
Retailing$10,373$67,3186,489,923
Hotels, Restaurants & Leisure$9,653$16,8801,748,714
Wholesalers$9,025$5,842647,312
Motor Vehicles & Parts$8,113$7,108876,123
Food & Drug Stores$6,746$8,3551,238,645

Interestingly, as a whole, the energy sector comes in third place in terms of profit per employee at $86K—that said, nine out of the bottom 20 least profitable companies are also found in this highly volatile industry.

Though the vast majority of businesses impacted by COVID-19 have been small to mid-sized companies, the above calculations also show that Fortune 500 companies are not safe, either.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Markets

How the S&P 500 Performed During Major Market Crashes

How does the COVID-19 market crash compare to previous financial crises? We navigate different contextual factors impacting crashes.

Published

on

How the S&P 500 Performed During Major Market Crashes

Like spectacular market peaks, market crashes have been a persistent feature of the S&P 500 throughout time.

Still, the forces underpinning each rise and fall are often less clear. Take the COVID-19 crash, for example. Despite lagging economic growth and historic unemployment levels, the S&P 500 bounced back 47% in just five months, in a stunning reversal.

Drawing data from Macrotrends, the above infographic compares six historic market crashes—examining the length of their recoveries and the contextual factors influencing their durations.

The Big Picture

How does the current COVID-19 crash of 2020 stack up against previous market crashes?

TitleStart — End DateDuration (Trading Days)% Drop
Black Tuesday / Great Crash*Sep 16, 1929 — Sept 22, 1954300 months (7,256 days)-86%
Nixon Shock / OPEC Oil EmbargoJan 11, 1973 — Jul 17, 198090 months (1,899 days)-48%
Black Monday**Oct 13, 1987 — May 15, 198919 months (402 days)-29%
Dot Com BubbleMar 24, 2000 — May 30, 200786 months (1,808 days)-49%
Global Financial CrisisOct 9, 2007 — Mar 28, 201365 months (1,379 days)-57%
COVID-19 Crash***Feb 19, 2020 — Ongoing5 months+ (117+ days)-34%

Price returns, based on nominal prices
*Black Tuesday occurred about a month after the market peak on Oct 29, 1929
**The market hit a peak on Oct 13th, prior to Black Monday on Oct 19,1987
***As of market close Aug 4, 2020

By far, the longest recovery of this list followed the devastation of Black Tuesday, while the shortest was Black Monday of 1987—where it took 19 months for the market to fully recover.

Let’s take a closer look at each market crash to navigate the economic climate at the time.

After the Fall

What were some factors that can help provide context into the crash?

1929: Black Tuesday / Great Crash

Following Black Tuesday in 1929, the U.S. stock market took 7,256 days—equal to about 25 years—to fully recover from peak to peak. In response to the market crisis, a coalition of banks bought blocks of shares, but with negligible effects. In turn, investors fled the market.

Meanwhile, the Federal Reserve Board rose the discount lending rate to 6%. As a result, borrowing costs climbed for consumers, businesses, and the central banks themselves. The tightening of rates led to unintended consequences, with the economy capitulating into the Great Depression. Of course, factors that contributed to its prolonged recovery have been debated, but these are just a few of the actions that had implications at the time.

1973: Nixon Shock / OPEC Oil Embargo

The Nixon Shock corresponded with a series of economic measures in response to high inflation. Soaring inflation devastated stocks, consuming real returns on capital. Around the same time, the oil embargo also occurred, with OPEC member countries halting oil exports to the U.S. and its allies, causing a severe spike in oil prices. It took seven years for the S&P 500 to return to its previous peak.

1987: Black Monday

While the exact cause of the 1987 crash has been debated, key factors include both the advent of computerized trading systems and overvalued markets.

To curtail the impact of the crash, former Federal Reserve chairman Alan Greenspan aggressively slashed interest rates, repeatedly promising to take great lengths to stabilize the market. The S&P took under two years to recover.

2000: Dot Com Bubble

To curb the stratospheric rise of U.S. tech stocks, the Federal Reserve raised interest rates five times in eight months, sending the markets into a tailspin. Virtually $5 trillion in market value evaporated.

However, a number of well-known companies survived, including eBay and Amazon. At the time, Amazon’s stock price cratered from $107 to $11 while eBay lost 75% of its market value. Meanwhile, a number of Dot Com flops included Pets.com, WorldCom, and FreeInternet.com.

2007: Global Financial Crisis

Relaxed credit policies, the proliferation of subprime mortgages, credit default swaps, and commercial mortgage-backed securities were all factors behind the market turmoil of 2007. As banks carved out risky loans packaged in opaque tranches of debt, risk in the market accelerated.

Similar to 1987, the Federal Reserve initiated a number of rescue actions. Interest rates were brought down to historical levels and $498 billion in bailouts were injected into the financial system. Crisis-related bailouts extended to Fannie Mae and Freddie Mac, the Troubled Asset Relief Program (TARP), the Federal Housing Administration, and others.

2020: COVID-19 Crash

In 2020, historic fiscal stimulus measures along with trillions in Fed financing have factored heavily in its swift reversal. The result has been one of the steepest rallies in S&P 500 history.

At the same time, the economy is mirroring Great Depression-level unemployment numbers, reaching 14.7% in April 2020. In short, this starkly exposes the sharp disconnect between the markets and broader economy.

Bearing Witness

History offers many lessons, and in this case, a view into the shape of a post-coronavirus market recovery.

Although the stock market is likely rallying off Fed liquidity, investor optimism, and the promise of potential vaccines, it’s interesting to note that the trajectory of this crash in some ways resembles the initial rebound shown during the Great Depression—which means we may not be out of the woods quite yet.

As the S&P 500 edges 2% shy of its February peak, could the market post a hastened recovery—or is a protracted downturn in the cards?

This graphic has been inspired by this Reddit post.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Subscribe

Join the 200,000+ subscribers who receive our daily email

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular