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Keeping Up With the Consumer

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The prophesized doom and gloom 2023 recession has yet to rear its ugly head. Many analysts are pushing the prediction to 2024, but will that happen? A good test is to look at the consumer’s financial situation.

Student loans

As of the first of this month, federal student loans are accruing interest after several years of pause. As of June 30, 2023, 45.9 million people, an estimated 17% of adults, will need to resume repayment plans in coming weeks with 68% of borrowers owing more than $10K. Luckily, borrowers can ease their way back into payments as there will be protection from late penalties and delinquencies will not be reported to credit bureaus. Monthly average repayment estimates vary. While some promise to boycott repayment, others are unsure who their payment processor is anymore.

Auto loans

According to the New York Fed’s Q2 data, outstanding auto loans have eclipsed student loans for the first time since 2009. MVLOAS (Motor Vehicle Loans Owned and Securitized) has been tracking +32% over four years ago – when COVID-19 was anything but close. Edmunds estimates new car payments in the second quarter of 2023 were $733 per month, while used cars were $569. As car payments have risen, so are delinquency rates on auto loans.

Source: New York Fed Consumer Credit Panel/Equifax data.

Buying on credit

Whether banks are raising credit card interest rates to match the underlying risk profiles of cardholders or merely to parallel the Federal Funds Effective Rate, borrowers are, and will be, owing more.

Source: FRED

At the same time, another milestone was also hit, outstanding credit card balances have crossed the $1 trillion threshold. Q2 showed a ~$140B increase from the prior year, or +16%.

Source: New York Fed Consumer Credit Panel/Equifax data.

While not extreme, overdue balances are on the rise, and have been for seven consecutive quarters. These appear to be the highest levels in over 20 years. The Fed does note that delinquency rates are still low.

Source: Federal Reserve. 


Lastly, personal savings rates are down, as defined by a percentage of disposable personal income. In July 2023, the U.S. Bureau of Economic Analysis shared the personal savings rate was just 3.5%. This is less than during the ’08 financial crisis (December ’07 through June ’09) rate of 5.1%. The long-run average in the U.S. has been 6.6% since 2000. Some would argue people cannot save during times of high inflation. However, in 1980, inflation almost hit 15% and consumers were still able to save 10%. Consumers are missing out on extraordinary, risk-free returns from products, CDs, savings accounts, and the like products.

Source: FRED


The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.


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