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What do consumer credit metrics tell us about household financial health and the outlook for consumer spending?

While far from levels reached in 2008, a growing percentage of consumer debt is falling into delinquency.

Cracks starting to show in consumer debt service chart illustration

Debt delinquency data is often used as a gauge of the health of the U.S. consumer. Both its level and trend can provide insights into consumers’ ability to meet their payment obligations related to credit cards, auto loans, mortgages, student loans, and more.

The chart above illustrates the percentage of outstanding consumer debt that was over 90 days late at the end of the third quarter, divided into major loan types. The specific length of delinquency noted (over 90 days past due) is often characterized as “serious,” creating heightened concern around the ability of consumers to make their required payments.

There are notable trends over the past few quarters in this data. Delinquency rates for both credit cards and auto loans have started to rise as consumers grapple with the higher cost of financing. Mortgage delinquency rates remain comparatively subdued, likely because most mortgage holders locked in a low 30-year fixed rate prior to the recent rate hiking cycle. Student loan delinquencies also remain low, although the potential for near-term deterioration exists given the resumption of required payments just last month.

Why does this matter? The uptick in delinquencies for credit cards and auto loans suggests that consumers are increasingly feeling the impact of higher interest rates. Growing delinquencies may also be a warning that consumption growth could be poised to falter, creating a headwind to growth. That risk is real but may not be imminent if early indications of consumer spending trends for the holiday shopping season are any indication of how the end of the year will play out for retailers. For now, consumers are still spending.

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Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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