Evening Brief – 11.07.23
Hey Big Spender
The Federal Reserve Bank of New York released its latest data on household debt, which revealed that the strong third-quarter spending was driven by Americans using their credit cards at an all-time high year over year.
U.S. household debt climbed by $228 billion in the third quarter, bringing the total to $17.3 trillion. This included a $48 billion increase in credit card balances to $1.08 trillion, marking the ninth consecutive quarter of year-over-year increases.
Researchers noted in a blog post that credit-card balances are now $154 billion greater than they were a year ago, the highest yearly gain since the New York Fed began tracking the data in 1999.
“Credit card balances experienced a large jump in the third quarter, consistent with strong consumer spending and real GDP growth,” said Donghoon Lee, Economic Research Advisor at the New York Fed. “The continued rise in credit card delinquency rates is broad based across area income and region, but particularly pronounced among millennials and those with auto loans or student loans.”
As of September, 3% of outstanding debt was delinquent, with credit cards leading the way. Most notably, the share of debt that has become newly delinquent is now rising for most categories of debt, with the share of newly delinquent credit card users climbing in the third quarter, surpassing pre-pandemic levels.
Millennial credit card users began exceeding pre-pandemic delinquency levels in the middle of last year and now have transition rates that are 0.4 percentage point higher than in the third quarter of 2019. Baby Boomers, Generation X and Generation Z credit card users, meanwhile, have delinquency rates like their pre-pandemic levels and trends
Mortgages, auto loans, student loans, and other credit products such as retail cards and personal loans also saw quarterly increases. At the end of September, mortgages totaled $12.14 trillion. Auto loan balances total $1.6 trillion. Student loan debt grew by $30 billion last quarter, reaching $1.6 trillion by the end of September.
According to the New York Fed, borrowers with auto or student loans were more likely to fall behind on their payments than before the pandemic. This was especially true for people who had student debts or car loans. These repayment issues are likely to worsen for student loan borrowers now that payments have resumed.
Policymakers will be watching to see if consumers can keep up with their debt payments and continue spending in the face of rising interest rates, increasing obligations, and decreasing savings.