New York Fed: US credit card debt rises in third quarter due to strong economy, as credit problems rise

NEW YORK (Reuters) – Total U.S. household debt levels rose in the third quarter amid strong growth in credit card loans fueled by a hot economy, although there are growing signs that some borrowers are facing increasing challenges managing the money they have borrowed, a report by… Federal Reserve Bank of New York on Tuesday.

The bank said in its quarterly report that total debt levels rose by 1.3% during the third quarter to the level of $17.29 trillion. In this surge, credit card borrowing levels rose 4.7% to $1.08 trillion, with the bank noting that over the past year there was a $154 billion increase in these types of balances, the largest since the Federal Reserve Bank of New York began tracking Such data in 1999.

“Credit card balances saw a significant jump in the third quarter, consistent with strong consumer spending and real GDP growth,” Donghun Lee, an economist at the Federal Reserve Bank of New York, said in a press release accompanying the report.

US economic activity in the third quarter experienced a rapid pace that few economists expect to be repeated in the final three months of the year. Overall activity rose at a well above trend pace of 4.9%, the fastest such increase in two years, in an environment in which the Federal Reserve was raising interest rates and overall borrowing costs rose broadly.

A rise in borrowing costs has crippled activity in the housing market amid the highest mortgage rates in decades, and the scene has raised concerns that many Americans will struggle to manage their debt, especially as high savings levels decline during the coronavirus pandemic. The New York Fed report found that credit issues are on the rise, albeit from low levels.

Storm clouds

Total delinquencies increased 3% as of September from a 2.6% increase in the second quarter, while still below the 4.7% delinquency rate recorded in the fourth quarter of 2019, just before the pandemic arrived, the report said.

The total flow of debts that turned into delinquency reached 1.28% in the third quarter, compared to 0.94% in the third quarter of last year. The report said increases in credit card delinquency rates were most pronounced for borrowers over the age of 30.

“The continuing rise in credit card delinquency rates is broad across income and region, but is particularly pronounced among millennials and those with car loans or student loans,” the economist noted.

On rising credit issues, “this seems consistent with a weak trajectory for consumer spending, but not particularly bad,” said Daniel Silver, an economist at JPMorgan.

In a blog post that came with the report, economists at the Federal Reserve Bank of New York said the rise in credit problems is puzzling given the generally solid state of the economy.

Pinning an explanation for the rise in delinquency rates is “difficult,” the publication said, and “whether this is the result of shifts in lending, over-expansion, or deeper economic distress associated with rising borrowing costs and price pressures is an important topic for further research.”

In comments on Monday, Fed Governor Lisa Cook said she was not concerned about household-level debt issues, while noting, “Of course, we are seeing emerging signs of stress for households with lower credit ratings, and individual borrowers may have difficulty with… Pay off their debts. Debt burdens in the face of economic difficulties.”

The New York Fed report found that total student loan debt rose by $30 billion to $1.6 trillion in the third quarter. The bank’s data on this type of borrowing arrives after the restart of student loan debt payments, which were suspended during the pandemic. The resumption of these payments has been a source of concern, but recent research by the Federal Reserve Bank of New York indicated that only modest economic headwinds are likely to result.

Newly originated mortgage loans totaled $386 billion in the third quarter, while the overall level of mortgage balances rose by $126 billion to $12.14 trillion as of the end of September.

The balance of auto loans rose by $13 billion in the third quarter to reach $1.6 trillion, “continuing the upward trajectory that has been in place since 2011,” the report said.

Our Standards: The Thomson Reuters Trust Principles.