American Consumer Debt Reaches New Highs
Just before the U.S. Census Bureau releases the retail sales data for the month of April, a shocking statistic has arisen that can provide clearer information about the state of the American consumer. For the first quarter of 2023, U.S. consumer debt reached an all-time high of $17 trillion, up by almost $3 trillion just before the pandemic. The startling news comes even after large pullbacks in home borrowing costs, which carry an estimated 70% of the total consumer debt. For the same period, new mortgage originations and refinancing reached their lowest quarterly level since 2014, and home loans declined as interest rates continue to rise.
Of the total consumer debt, U.S. credit card debt reached roughly $1 trillion, higher than levels before the pandemic. Since the fourth quarter, credit card debt held the same figure, the first time a decrease wasn’t seen between the quarters in almost 20 years. Normally, the first fiscal quarter is a period where consumers pay off elevated levels of credit debt incurred throughout the holiday season; however, this year was different. Delinquency rates, the amount of credit debt that is past due, also increased by over half a percentage point to pre-pandemic levels. Overall, TransUnion has recorded credit card balances to have increased by 20% year-over-year, near record highs. Coupled with the highest credit-card interest rate recorded at 20.33%, it seems the American consumer may experience trouble throughout the next quarter. With higher debt and higher carrying costs, it is assumed that demand may have to fall as Americans push back on spending to pay back their debt.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.