The Philadelphia Federal Reserve has published a report showing that consumer stress has increased as the share of cardholders making only minimum payments on their bills grows.
Data from the third quarter of last year indicates that the share of active holders who just made baseline payments on their cards rose to a 12-year high. The corresponding figure increased by 10.75% for the mentioned period. In this case, there is a continuation of the tendency, which has been observed since 2021 and accelerated against the background of rising average interest rates and delinquencies.
It is worth noting that the growth recorded in the third quarter of last year was high for a data set that began in 2012.
Simultaneously with the increase in minimum payments, the dynamic of delinquency rates is showing an upward tendency.
The share of balances more than 30 days past due in the third quarter of 2024 was 3.52%. This indicator grew by more than 10% year-on-year.
It is worth noting that the mentioned information significantly contrasts with the currently intensely circulating statement about healthy consumer activity in the United States. According to the relevant opinion, the US consumer continues to spend money, despite the fact that inflation reached a more than 40-year high in mid-2022 and held above the 2% target of the country’s central bank for almost four years.
At the same time, there are some positive signs, and this fact is objective. Even with the rising delinquency rate, the pace is still well below the 6.8% peak seen in 2008-2009 amid the financial crisis. There are also currently no indicators that signal serious strains.
Elizabeth Renter, senior economist at personal finance company NerdWallet, said that much remains unknown. In this context, it was separately noted that in the past few days, there has been an example of how quickly things can change. Elizabeth Renter also stated that the baseline expectation is consumers in aggregate economywide will remain strong.
Adjusted for inflation, consumer spending in the United States rose 2.9% year-on-year in November. The relevant data was published by Goldman Sachs. This week, the mentioned financial institution stated that it sees consumers as a source of strength in the economy. The bank expects consumer spending to slow down somewhat in 2025, but still continue to show growth at a healthy 2.3% real rate. Goldman Sachs also sees delinquency rates showing signs of leveling.
Fed data shows that average credit card rates have climbed to 21.5%, or about 50% higher than three years ago.
The media notes that consumers have not received any assistance from the central bank of the United States. Even after the US financial regulator cut its benchmark interest rate by a full percentage point last year, credit card costs remained elevated.
The Philadelphia Fed data indicates that those rates are hitting much higher balances, with money owed on revolving credit swinging to $645 billion. This figure rose by 52.5% higher than after reaching a ten-year low of $423 billion in the second quarter of 2021.
Elizabeth Renter said that an increasing number of respondents say they use credit cards for essentials. Currently, the corresponding figure is 48%. The results of the NerdWallet survey indicate that 22% of respondents make only minimum payments using credit cards.
It is worth noting that the tendencies nowadays observed do not contain any reasons for optimism. The results of the December New York Fed survey indicate that the average perceived probability of missing a minimum debt payment over the next three months is 14.2%. This figure is the highest since April 2020.
According to the Philadelphia Fed report, mortgage originations for the third quarter of 2024 were equivalent to a more than 12-year low. This figure was recorded at the $63 billion mark.
Debt-to-income ratios on home loans hit 26% most recently, or 4% higher over the past five years. The typical 30-year mortgage rate recently has swelled above 7%. In this case, another obstacle emerged for housing and homeownership.
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