How’s my consumer clientele’s credit?

December 12, 2024/Business/

This article started out as a “Pricing” article and was going to be about how do funeral businesses raise their prices for the new year in a world where inflation on consumer’s everyday purchases has continued to stay elevated?

I was wondering because economic indicators from last Friday showed a gain in American jobs but also a rise in the unemployment rate to 4.2%. . . and, anecdotally, major employers headquartered in my area, Cargill and Toro, announced thousands of job layoffs around the world. I looked at those data points and wondered if I could see a trend developing.

So, I went searching for information that would confirm to me that the consumer was in a tighter position than, let’s say, a year ago. What I found was interesting, and probably acknowledges that the consumer, at least on the average, may be in a better position.

Here’s what the Federal Reserve Bank of New York says as to the American consumer’s position at the end of the 3rd Quarter of 2024 per this article:

“Total household debt increased by $147 billion to reach $17.94 trillion, according to the latest Quarterly Report on Household Debt and Credit. Aggregate delinquency rates edged up from the previous quarter, with 3.5 percent of outstanding debt in some stage of delinquency. Mortgage balances rose by $75 billion from the previous quarter to reach $12.59 trillion at the end of September. . . . . Credit card balances increased by $24 billion to hit $1.17 trillion, and auto loan balances saw an $18 billion increase and stood at $1.64 trillion. HELOC (Home Equity Loans) balances increased by $7 billion to reach $387 billion, representing the tenth consecutive quarterly increase since Q1 2022.”

So, that paints a not-so-pretty picture of family or consumer debt in America. However, in a related article from the Federal Reserve Bank of New York that you can read here, they point out a positive attribute of where the American consumer is also:

“The aggregate debt balance has continued to climb since the pandemic, reaching $17.94 trillion in the third quarter of 2024. However, during this same time, Americans’ disposable personal income has grown as well, reaching a value of $21.80 trillion. Now, the ratio of total debt balance to income is 82 percent, just below the pre-pandemic level of 86 percent in 2019. Relative to income, balances are actually lower than they were before the pandemic.” (Emphasis by Funeral Director Daily)

Here’s a chart of Consumer Debt to Income from 2000 through today:

As you can see, debt has risen dramatically, but not as a percentage of personal income. I’m pretty certain that your consumer clientele will range away from these average statistics to a range of consumers who, on one end of the spectrum, have no problem paying for funerals all the way to a group of less fortunate clientele that have no ready cash or credit available to them at the time of a death in the family on the other end of the spectrum.

Tom Anderson
Funeral Director Daily

Doing this exercise and finding these credit statistics also pointed out to me that like politics, the funeral business is truly a “local business”. Your clientele, and probably their ability to pay, probably has some correlation to where your funeral home is located.

For instance, an inner city funeral home may find lots of issues with credit and finance in contrast to a wealthy suburb funeral home where you would expect little problem with that issue. And, if you are in a rural or regional center city like I am, you always have to be prepared for client families on both extreme ends of the spectrum. . . . . And my guess, is that if you have lived in your community for any length of time, then you know who your clients are and the situations that you will probably face with service payments.

To that point on contrasting situations, here is a quote from the 2nd linked article above on some of those differences and trends:

“(the) divergence of debt-to-income measures based on the type of household debt and the heterogeneous characteristics of borrowers might shed light on the economic situations faced by different groups of people in the U.S., particularly when paired with differential movements in delinquency rates. The recent downward movement in the ratio of debt to income has been followed by an apparent moderating of delinquency rates for auto loans and credit cards during the third quarter, and if that trend continues, it would suggest that rising debt burdens remain manageable.”

I guess we will talk about pricing of services another day. . . . .I somewhat got carried away with the statistics I found while investigating the position of the American consumer in today’s world. . . . But, as I’ve always found out, you learn something from the investigation.

Related Article — Inflation remains sticky, with (November 2024) CPI rising 2.7% from a year ago. Yahoo Finance (Editor’s Note: Here’s a quote from this article which was published yesterday: “Since May 2023, wages have been rising faster than inflation, which is the main reason why persistently higher inflation has not slowed overall consumer spending.”

Related Note — According to this graph below, wage growth remains higher than inflation. That is something to think about when looking at your next round of employee compensation decisions. It’s also interesting to note that it appears wage growth may continue to remain higher than inflation growth for the immediate future. If that is true (continued wage growth) in the funeral home business world then funeral homes may find it difficult to maintain current staffing in a Death Care world where it is a challenge to maintain revenue per case levels as the growth of cremation and direct cremation continues.