December 3, 2023

US total household debt levels continued to rise in the third quarter, amid a surge in credit card debt tied to a hot economy, while borrowing troubles increased in a way that if sustained could signal looming turbulence for the economy, a report from the Federal Reserve Bank of New York released Tuesday said.

In its quarterly report, the bank said overall debt levels increased by 1.3% during the third quarter to a level of $17.29 trillion. And in that rise, credit card borrowing levels rose by 4.7% to $1.08 trillion.

Credit card balances experienced a large jump in the third quarter, consistent with strong consumer spending and real GDP growth, said Donghoon Lee, a New York Fed economist, in a press release accompanying the report.

US economic activity in the third quarter took placeat a blistering pacefew 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 gain in two years, in an environment where the Fed was raising rates and overall borrowing costs broadly rose.

The surge in borrowing costs has waylaid activity in the housing market amid the highest mortgage rates in decades, and the landscape has fueled worries that many Americans will struggle to manage their debt, especially as high levels of savings during the coronavirus pandemic run down. The New York Fed report found credit issues are rising, albeit from low levels.

Overall debt delinquency increased by 3% as of September from a 2.6% increase in the second quarter, the report said, while still standing below the 4.7% delinquency rate seen in the fourth quarter of 2019, just ahead of the pandemics arrival.

The overall flow of debt moving into delinquency stood at 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 those aged between 30 and 39.

The continued rise increditcarddelinquency rates is broad-based across area income and region, but particularly pronounced among millennials and those with auto loans or student loans, the economist noted.

In a blog posting that came with the report, New York Fed economists said the rise in credit woes is puzzling given the generally solid state of the economy.

Pinning an explanation on the delinquency rise is difficult and whether this is a consequence of shifts in lending, overextension, or deeper economic distress associated with higher borrowing costs and price pressures is an important topic for further research,” the post said.

The New York Fed report found that overall student loan debt rose by $30 billion to $1.6 trillion in the third quarter. The banks data on this type of borrowing arrived after the restart of student loan debt payments, which had been put on hold during the pandemic. The resumption of those payments has been a source of concern, butrecent New York Fed researchhas suggested only modest economic headwinds are likely to result.

Newly created mortgages 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 report said auto loan balances were up by $13 billion in the third quarter at $1.6 trillion, continuing the upward trajectory that has been in place since 2011.

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