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Fears over the sustainability of the American consumer economy escalated this month when the Federal Reserve of New York published quarterly data on household debt and credit in the United States.
The Fed report (.pdf) showed a $212 billion spike in household debt during the fourth quarter of 2023 – raising the total tide of red ink to $17.5 trillion. While that’s only approximately half of the federal government’s massive $34.2 trillion debt – it could spell significant trouble for consumers still struggling to adjust to the post-pandemic inflationary climate.
A look inside the numbers revealed several troubling trends …
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Nearly one quarter of the new household debt – $50 billion – came in the form of credit cards. Total credit card debt total now stands at a record $1.13 trillion – up 46 percent from where it was during the first quarter of 2021. Also, annualized delinquency rates for credit cards and auto loans shot up to 8.5 percent and 7.7 percent, respectively.
“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”
All told, 2.66 percent of all auto loans had entered “serious delinquency” during the fourth quarter of last year – meaning they were more than ninety days due. That’s up from 2.22 percent during the fourth quarter of 2022. The credit card numbers were even worse, with 6.36 percent of credit card debt entering into “serious delinquency” as of last December – up from 4.01 percent the same time a year earlier.
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“This signals increased financial stress …”
-Wilbert van der Klaauw, New York Fed
Compounding the problem are exorbitant interest rates, which currently stand at 20.75 percent, according to Bankrate.
“You’ve got to give credit to Visa, Mastercard, Discover and Amex,” noted market analyst Mike Maharrey. “They’ve managed to build one heck of a booming economy.”
“Despite surging price inflation, ‘resilient’ American consumers have managed to keep spending money, driving ‘strong’ economic growth – thanks to their credit cards,” Maharrey wrote in a recent column for Money Metals. “But there’s a problem. Americans are having an increasingly hard time keeping up with the bills.”
According to Maharrey, “it’s clear that Americans have used credit cards to keep up with the bills as price inflation ate up their real earnings.”
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“If Americans can’t borrow anymore, how will the economy continue to ‘grow?'” he concluded.
According to the Fed report, overall delinquency rates stood at 3.1 percent in December – an increase of 0.1 percent from the third quarter of 2023. Delinquency rates are 1.6 percent lower than they were in 2019 – although this statistic is misleading due to U.S. president Joe Biden‘s policy on reporting student loan delinquency.
In an effort to protect consumer credit in the wake of student loan repayments being resumed last September, Biden’s administration directed delinquencies tied to this form of borrowing not be reported to credit bureaus for a period of twelve months.
“Because of these policies, less than one percent of aggregate student debt was reported ninety-plus days delinquent or in default,” during the fourth quarter of last year, per the New York Fed.
At last count, student loan debt in the United States totaled approximately $1.6 trillion. Look for delinquencies in this category of consumer debt to explode during the course of the coming year – a ticking time bomb tucked within a ticking time bomb, if you will.
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ABOUT THE AUTHOR …
Will Folks is the founding editor of the news outlet you are currently reading. Prior to founding FITSNews, he served as press secretary to the governor of South Carolina and before that he was a bass guitarist and dive bar bouncer. He lives in the Midlands region of the state with his wife and seven (soon to be eight) children.
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1 comment
I think people who are suddenly concerned about debt slavery now are outing themselves as people who are OK with a certain “acceptable” level of debt slavery going rampant around them. “Just don’t let it get too out of hand, and don’t let it affect me!”
This is the guy who gets excited at some ZeroHedge nut using Tyler Durden as a handle. You -did- see the end of that movie, right?