Economists were concerned that rising interest rates in 2022 through 2024 would lead to a recession, but strong consumer spending happily saved the day contributing to moderate economic growth. While the consumer is still generally healthy, there is one flashing yellow light we need to monitor. As shown below, total consumer debt has increased by just over $4 trillion or 29% since the beginning of 2020. The largest increase in both dollar and percentage terms was in housing related debt, but other forms of consumer debt rose by about 19%.
The following chart graphically illustrates the concern.
Following a five-year reprieve, the government recently restarted collections on student loans resulting in the spike in the delinquency rate from .6% to 7.75%. Delinquent borrowers can expect a decrease in their credit score as well as potential seizure of federal payments such as Social Security and tax refunds. In extreme circumstances, a portion of their wages may be garnished. The other noteworthy increase was in credit card debt where the overdue rate rose from 7.6% in 2022 to a current reading of 12.3%. As you will note, there were also moderate increases in delinquency for the auto loan and “other” categories. One explanation for increased delinquency is the reduction in personal cash balances built up as a result of government programs designed to ease the impact of the pandemic. The good news is that the mortgage delinquency rate remains quite manageable at .86%.