Higher Debt and Delinquencies Are Challenging the Economy

Debt Dilemma

Despite a strong economy with a sub-4% unemployment rate and resilient consumer spending, an increasing number of Americans are facing pressure as debt levels and delinquencies rise.

Rising Delinquencies

In the first quarter of 2024, the percentage of credit card balances delinquent for 90 days or more reached its highest level since 2012, per New York Fed data. 3.2% of all outstanding debt is now delinquent, marking the aggregate delinquency rate’s highest level since late-2020.

After falling to historically low levels during the pandemic, delinquency rates are back above their pre-pandemic levels. Since the fourth quarter of 2021, transitions into delinquency have risen across all categories of debt, save student loans.

On the bright side, the rates are still lower than what was seen during the Great Recession. Nevertheless, they signal that the American consumer is feeling significant pressure from inflation and elevated borrowing costs, which could weigh on the economy going forward.

Spending Strain

Total household debt sat at nearly $17.7 trillion in Q1 2024, an increase of $184 billion from Q4 2023. More than $1 trillion of that came solely from credit cards.

This pressure is already showing in consumer spending data. April retail sales numbers held flat for the month, compared to the expected 0.4% increase. That figure isn’t adjusted for inflation either, underscoring the acute spending strain consumers are facing.

What’s worse, with delinquency rates on the rise, the full impact of these elevated debt levels and multi-decade high interest rates on consumer spending may not be fully felt yet. If the share of maxed-out borrowers continues to grow and American budgets find even less room for additional spending, the implications for the broader economy could be significant.

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