Consumer credit is finally showing signs of rolling over. And credit card delinquencies surged in the third quarter.
Total Household Debt Reaches $17.29 Trillion in Q3 2023
The New York Fed reports Total Household Debt Reaches $17.29 Trillion in Q3 2023; Driven by Mortgage, Credit Card, and Student Loan Balances
The Federal Reserve Bank of New York’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit. The Report shows total household debt increased by $228 billion (1.3%) in the third quarter of 2023, to $17.29 trillion. The report is based on data from the New York Fed’s nationally representative Consumer Credit Panel.
Mortgage balances rose by $126 billion from the previous quarter and stood at $12.14 trillion at the end of September. Credit card balances increased by $48 billion to $1.08 trillion in Q3 2023, representing a 4.7% quarterly increase. Auto loan balances rose by $13 billion, consistent with the upward trajectory seen since 2011, and now stand at $1.6 trillion. Student loan balances increased by $30 billion and now stand at $1.6 trillion. Other balances, which include retail cards and other consumer loans, increased by $2 billion.
Aggregate delinquency rates increased in Q3 2023, with 3% of outstanding debt in some stage of delinquency at the end of September. Delinquency transition rates increased for most debt types except student loans and home equity lines of credit. The increases in credit card delinquency were the sharpest among borrowers between the ages of 30 and 39.
“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.”
Consumer Credit in Billions of Dollars
The third and largest of the three rounds of fiscal stimulus shows clearly in the above chart. Starting around March of 2023, stimulus finally seems to have been used up.
Delinquencies are on the rise over credit stress.
Revolving Consumer Credit in Billions of Dollars
Adjusted for inflation, revolving consumer credit declined in September. Nominal credit rose slightly. Revolving credit trends to sink in recessions.
Credit Card Debt Grinds To A Halt As Average APR Hits New Record High
Zerohedge comments Credit Card Debt Grinds To A Halt As Average APR Hits New Record High
the slowdown in debt, and especially credit card debt, is not a surprise since as the Fed also reported today, in September, the average rate on credit cards across US financial institutions just hit a record high of 22.77%.
Good luck with carrying all that debt at 22.77 percent.
Five Alarm Bell – Biden Trails Trump in Five of Six Battleground States
Financial stress is showing up in the polls.
CPI Rises More Than Expected as Rent Jumps Another 0.6 Percent
I repeat the core key theme for something like two years now. People keep telling me rents are falling, I keep doubting. The doubters have it correct again.
All these “rents are falling” projections have been based on the price of new leases, but existing leases, vastly more important, keep rising.
On October 12, I noted CPI Rises More Than Expected as Rent Jumps Another 0.6 Percent
Rent of primary residence, the cost that best equates to the rent people pay, jumped 0.6 percent. Rent of primary residence has gone up at least 0.4 percent for 26 consecutive months!
It is not the wealthy who make up the majority of renters. So rent alone is fueling the pain. Factor in food.
A rising stock market and home prices does not help those with no assets. And the poor have no assets.
Five Alarm Bells
Please note Five Alarm Bell – Biden Trails Trump in Five of Six Battleground States
Discontent pulsates throughout the Times/Siena poll, with a majority of voters saying Mr. Biden’s policies have personally hurt them.
Voters under 30 favor Mr. Biden by only a single percentage point, his lead among Hispanic voters is down to single digits and his advantage in urban areas is half of Mr. Trump’s edge in rural regions.
Note the credit card stress in those in their 30s. And they are also struggling with rent.
Other than rent, food, EVs crammed down everyone’s throat, unlimited aid to Israel and Ukraine while there is suffering here, and a half dozen other things, everything else is OK (if you have assets and an existing mortgage refinanced at 3 percent).
If you seek a one-sentence explanation of the polls, just read the above paragraph.
Powell is losing the inflation fight. AGAIN. He doesn’t see this any more clearly than he did in 2020 with the last pulse. Powell will go down in history.
The political and business “leaders” of the US already maxed out their great-grandchildren’s credit cards decades ago.
Why shouldn’t the kiddies follow the example set by their elders?
The FED was never supposed to be more than a band-aid as real wages failed to meet inflation & the government has had to increase spending, either to create the jobs that “job creating tax cuts” haven’t created, or on social entitlements as boomers retire.
Congress is owned by wealthy campaign contributors, which has turned the FED into the last resort to offset the lack of wage growth.
And now we’re at a nasty crossroads, the FED can’t cut with the market still in bubble territory and inflation has only begun to abate, but consumer credit is maxed and starting to effect the economy.
For over 40 years both household and government debt have exploded relative to income & revenues, it’s safe to say trickle-down Reaganomics has failed.
It’s also safe to say that calling bribery “free speech” was incredibly wrong-headed by the Supreme Court.
.
The good news is, a majority of that debt is in low rate, long term mortgages. I wish I had a 30 year, 3% mortgage. Those people will make out well as the government inflates away its debt (assuming they can service their mortgages).
But as Bohm-Bawerk said, debt is future spending denied. Thus, all those tamped out consumers are not likely to “do a lot of consuming”.
Actually, the good news is that it’s starting to look like we’re finally going to get our much-needed recession in 2024.
As I’ve said many times before, prior to having to change my handle (BENW), because Mish has apparently blacklisted that alias with this new website, the question becomes will Congress trot out rent & mortgage relief.
That describes me. My problem is that Newsom is trying to pass more and more laws which will tax me even more. So I’m contemplating selling my business now and selling my primary home which has a 2.5% 30 year fixed.
I figure the sooner I can get out of here the less taxes I’ll pay in the long run. Besides, I’d rather pay taxes to a state that spends the money wisely and protects law abiding citizens.
WTF happened to all of you in California? You had it made. Great weather, lots of trees and fresh air, lots of jobs, a booming economy… and you (the collective state, not “Billy” personally) voted yourselves into poverty and despair.
California is bankrupt, and Newsome makes no effort to suggest any of the debt will ever be paid back.
Newsome insisted everyone (else) be locked down for Fauci Covid, and then Newsome dined at the French Laundry with his oligarch donors!!!! Does Newsome hate his oligarch controllers and hate himself? Or did he know Covid was no where near as fatal as Fauci insisted?
And why, please tell us, why did the people of California elect him again? Why haven’t you recalled him? Why can’t California elect anyone competent?
This isn’t about Newsome per se. He is a corrupt fool. But the rest of the country is dangerously going broke, filling itself with homeless camps and pooping on our own streets. Maybe we could learn from California’s mistakes?
The average per capita household debt in the USA is $102,000.
This number doesn’t mean much unless you break out mortgage debt, which is on an appreciating asset. The other debt categories are very worrisome, true
Bonus: I made a speadsheet of median income vs median home price for each state. My findings:
State, Median household income, Median home price, ratio annual mortgage payment/income
CA, $84907, $799000, 76.91%
HI, $84857, $713000, 68.68%
MT, $63249, $527000, 68.10%
WA, $84247, $621000, 60.25%
NY, $74314, $531000, 58.40%
MA, $89645, $640000, 58.35%
OR, $71562, $510000, 58.25%
CO, $82254, $582000, 57.83%
ID, $66474, $460000, 56.56%
UT, $79449, $545000, 56.07%
…
MS, $48716, $263000, 44.13%
VT, $72431, $390000, 44.01% (MEDIAN ratio)
…
IA, $65600, $239000, 29.78% (MIN ratio)
The “annual mortgage payment” assumes a 30yr fixed mortgage, perfect credit, 7.87% rate, P&I ONLY (AFTER subtracting 6% typical downpayment according to rocket mortgage). I left an additional digit on the ratio so people can round or truncate to 3 significant figures. That said, Even if my ratio numbers are 5% off, they are still *brutal*.
Nice job Jeff.
My theory is that remote workers are really leveling out the field across the USA. I feel that prices on everything will equalize even more over the next 5 years.
A home is an appreciating asset only if you keep piling on additional money for maintenance and upgrades.
And only if prices don’t explode way beyond affordability.
We are on the verge of capitulation. Prices will crash once this happens and then the economy will recover next summer/fall. Delinquencies happen b/c it is the late innings of an economic cycle.
Recover next summer or maybe not recover at all
I keep seeing Trump vs Biden race comments, with Trump leading but are they not going to prevent him (Trump) from Running and is Biden not losing Ground with his handlers not believing in him any longer and are simply leading him around by a Leash?
RFK jr has cooked his own goose in the past month.
Only half the size of the national debt which will never be paid either…
I don’t have a credit card. But I’m heating my house with all the junk mail credit card offers I’m getting.
Credit cards teaser loans at about 6% for one year, plus 5% fee, thereafter 20%/30% market rates. Teaser loans for small businesses rise before Xmas to finance A/P, or Jan terms A/R for mfg or suppliers.
Zombie c/c loans flip NPL from high rates to very low rates, lower than mortgage rates, days before the recycle bin, depending on how old and how long they are, between : 0%/6%. The bank lose
profit on interest, but keep the total assets intact.
Mish,
It’s not just credit card delinquencies that took a big jump percentage wise. Look at mortgages. They went up almost 50% too (.5% to .72%)
Given that mortgage debt is about 3/4 of the total, it is by far the most important indicator.
Not really because people will do anything to pay the mortgage as they don’t want to lose what they consider their most valuable asset Unsecured debt not so much
I am pleased student debt delinquencies have fallen. Unfortunately the Consumer Credit in $B has topped and rolling over. The increased use of and default rate for revolving credit indicate consumer desperation.
Anecdotal evidence:
I have a credit card with a 300k limit for my coin business that I run on the side. I also do quite a bit of referrals to credit cards and earn money that way.
Many of the people who I get paid to give financial advice to have had their credit limits cut recently. These are people with low credit scores, indicating to me that CC companies are reducing risk by limiting credit to those most likely to abuse it and incur losses for the CC companies.
That 2 percent increase in delinquencies is alarming, but not an emergency yet. It will be interesting to see how sharp the curve upward will be in the next few months. That is a strong signal for me of a looming spending plunge and recession.
Meanwhile, also anecdotal, my wife and I have very good personal credit, and keep getting offers with 0-interest for 12 months or more. We are charging more than usual onto such cards, while making 4-5% (or more) keeping funds in our savings deposit accounts for that time. There must be many like us. (Still amazing that ccards can offer 0% for a year, when rates are so high for everything else.)
Me too. My wife and I have excellent credit and get at least one credit card offer a day.
It’s the lower credit customers that are seeing credit getting cut, as they pose the most risk to the CC agencies as delinquencies rise.
It’s not that it increased by 2% but rather that the total number jumped by 50%!
Another anecdote. I have just received an offer from my CU to double the limit on my cc which I never even came close to using. It was the same for more than a decade, and always paid in full. I don’t consider it a good sign about the economy. Makes me wonder how’s the other business of the CU?