Insights from the New York Fed’s Quarterly Report on Household Debt and Credit

The latest Quarterly Report on Household Debt and Credit from the New York Fed’s Centre for Microeconomic Data sheds light on key trends in household debt and credit card utilisation, offering valuable insights into consumer financial behaviour and potential risks.

Moving Markets

Key Findings:

  1. Household Debt Growth: Household debt balances increased by $184 billion in the first quarter of 2024, with housing debt leading the way with a $206 billion increase. Auto loans also continued their steady growth while balances on other non-housing debts declined.
  2. Credit Card Utilisation Rates: While the nationwide aggregate credit card utilisation rate remained steady at about 23%, individual utilisation rates varied widely. Notably, 18% of borrowers were using at least 90% of their available credit, termed “maxed-out borrowers.”
  3. Correlation with Delinquencies: There is a strong correlation between high credit card utilisation rates and future delinquencies. Borrowers with high utilisation rates in the previous quarter were more likely to become newly delinquent, suggesting that tight cash-flow situations contribute to missed payments.
  4. Trends in Delinquency Rates: Delinquency rates, especially for credit cards, have been steadily rising since the fourth quarter of 2021, surpassing pre-pandemic levels. Maxed-out borrowers, whose transition rates into delinquency have noticeably increased, are largely responsible for the increase in delinquencies.
  5. Demographic Factors: Younger card users and those living in low-income areas are more likely to be maxed-out borrowers. Generation Z, in particular, has a higher incidence of high credit utilisation, reflecting shorter credit histories and lower income levels.
  6. Trends in Maxed-Out Borrowers: The share of maxed-out borrowers has increased from pandemic lows and is approaching pre-pandemic levels. Their transition rates into delinquency are now higher than pre-pandemic levels, contributing to the overall increase in credit card delinquency rates.

Implications and Conclusion:

The data suggest that credit card delinquencies are likely to continue rising if current trends persist, especially among maxed-out borrowers. Positive improvements in delinquency rates would require a decline in the transition rates among maxed-out borrowers or a reduction in their share. However, macroeconomic conditions can influence these trends, and monitoring will be crucial in understanding future developments.

Overall, the report emphasises the importance of credit card utilisation rates as a predictor of delinquencies and highlights the need for proactive measures to address financial vulnerabilities among borrowers, particularly those with high credit utilisation.

Facebook
Twitter
LinkedIn
Reddit
Telegram
Email

About Post Author