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