Credit card delinquency rates increased in 3Q23.

The Household Debt & Credit Report from the Federal Reserve Bank of New York for 3Q23 included further evidence that the consumer debt setup has continued to move in a negative direction. Credit card balances that transitioned into 30+ day delinquency increased to 8.01%, its highest level since 2011. Similarly, credit card balances that transitioned into serious delinquency (90+ days) increased to 5.78%, also its highest level since 2011. In terms of direction and pace, the past two years are only comparable to 2007 through 2009 as credit card delinquency rates across both thresholds have nearly doubled from their cycle lows.

One of the ways we can track the direction of this data during the fourth quarter is by looking at 8-K filings from companies like Capital One and Discover. As of October 30^th, the 30-day delinquency rate for Capital One on domestic credit card balances increased to 4.48%, up 131 basis points y/y. Discover 30-day delinquency rates reached 3.41%, up 131 basis points y/y to the highest level since November 2007.

When reviewing this data, it is important to remember this has been developing over a period where total balances accelerated at a near historic pace. As those balances season and/or lenders reduce allowable credit, the delinquency rate will likely move higher. Additionally, the increase in credit card delinquencies has occurred while student loan payments were on pause, which should have been a tailwind in terms of paying down other types of debt.

Ultimately, we are monitoring this data for a view into the probability of consumer spending either accelerating or decelerating moving forward. As it stands, we believe the debt setup would suggest consumers are in an increasingly difficult position to continue spending, especially within discretionary categories.

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Source: Macrobond.

 

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.