By Mike Dickson, Ph.D.
Are U.S. consumers ready to go more rounds?
“When will the consumer finally crack?” is a question that seems to be on more investors’ minds these days—not surprisingly, given that consumer spending has been a major driver of the U.S.’s generally robust economic growth. While investors cheer consumers’ continued strength, they’re also nervously looking for any signs that the economy’s biggest engine may be sputtering after what’s been a remarkable run.
This week, new data from the Federal Reserve Bank of New York confirms that consumers are still in fighting shape. As the chart above shows, despite consumers’ total credit card balances exceeding $1 trillion:
- Credit card debt relative to total assets (the black line and the data on the left side of the chart) at the end of the first quarter was just 0.9%—lower than both its long-term, pre-pandemic average of 1.3% and where it sat at the end of 2023.
- Total household debt compared to total assets (the yellow line and the data on the right side of the chart) was just 14.9% as of March 31st. That’s well below the long-term average of 19.8% and lower than it was at the end of last year.
The upshot: Although total debt has hit record levels, consumers’ ability to service that debt—to comfortably make their principal and interest payments—appears to remain strong and well under control.
Other encouraging news based on the Fed’s latest report:
- Overall delinquency rates across all loan types remain at 1.5 percentage points, below the pre-pandemic level of 2.4%.
- The median credit score of newly originated auto loans was four points higher than last quarter, at 724—the highest on record—while the median credit quality of newly originated mortgage loans remained roughly stable.
- Outstanding student loan debt was roughly unchanged during the quarter.
There are concerning signs that merit watching closely. Aggregate delinquency rates for credit cards increased in the first quarter of 2024, and more borrowers are behind on payments. Even though credit card debt represents only about 6% of total debt, a growing number of delinquencies may suggest weaker consumer spending trends are emerging—particularly given some of the lower-than-expected consumer confidence readings we’ve seen lately.
But overall, we think the message is clear: Now is probably not the time to underestimate the American consumer.
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