Tuesday, August 08, 2023

HARD TIMES: Total credit card indebtedness increased by $45 billion in the April-through-June Q2 2023 > Above above $$$$$$$$$1 Trillion for First Time

Americans increasingly turned to their credit cards to make ends meet heading into the summer, sending aggregate balances over $1 trillion for the first time ever, the New York Federal Reserve reported Tuesday.

ECONOMY

Credit card balances jumped in the second quarter and are above $1 trillion for the first time

PUBLISHED TUE, AUG 8 202311:00 AM EDTUPDATED AN HOUR AGO

Total credit card indebtedness rose by $45 billion in the April-through-June period, an increase of more than 4%.
That took the total amount owed to $1.03 trillion, the highest gross value in Fed data going back to 2003.

The increase in the category was the most notable area as total household debt edged higher by about $16 billion to $17.06 trillion, also a fresh record.

As card use grew, so did the delinquency rate.

The Fed’s measure of credit card debt 30 or more days late climbed to 7.2% in the second quarter, up from 6.5% in Q1 and the highest rate since the first quarter of 2012 though close to the long-run normal, central bank officials said.
Total debt delinquency edged higher to 3.18% from 3%.

Fed researchers say the rise in balances reflects both inflationary pressures as well as higher levels of consumption.

On the inflation issue, household income adjusted for inflation and taxes is running some 9.1% below where it was in April 2020, putting additional pressure on consumers, according to SMB Nikko Securities.

“This is an issue because the sustainability of consumers’ pandemic debt-binge was partially predicated upon their incomes steadily rising,”

Troy Ludtka, senior U.S. economist at SMBC Nikko, said in a client note. “Instead, the opposite occurred, and now the rate at which borrowers are running late on their debt payments is back to pre-Covid levels. This could be the newest challenge facing embattled commercial banks.”
The central bank also said demand for card issuance has eased, which has come in conjunction with banks saying that credit standards are tightening.

Debt across other categories showed only modest changes.

Newly originated mortgages rose to $393 billion though total mortgage debt nudged lower to just over $12 trillion.
Auto loans increased by $20 billion to $1.58 trillion and student loans decreased to $1.57 trillion ahead of the lifting of the moratorium on payments.

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The record level of US household debt

US household debt hit a record $16.9 trillion in the last quarter of 2022 — around $128,824 per household, on average. This rise is due to several factors, many of which can combine and make it difficult for people to pay down loans. Here’s the data on US states with the highest household debt relative to income.

Total household debt increased by approximately $1.1 trillion (roughly 6.7%) throughout 2022.
Inflation grew by 6.4% and kept consumer prices high. The increase in overall debt can be partially attributed to a 4% rise in interest rates by the Federal Reserve in 2022.
Despite the record-high household debt at the beginning of 2023, it was below the Q4 2008 peak of $17.4 trillion once adjusted for inflation.
Over 70% of current debt is from mortgages. At the end of 2022, it accounted for $11.73 trillion; student loan debt has risen over the past two decades to become the second-largest component of household debt. In Q4 2022, it reached $1.57 trillion.