Stock market today: Wall Street closes its best week of the year with even more gains
Credit card balances grew by 16.3% for all U.S. consumers over the past year, with the average balances among younger consumers—Generation Z and millennials—growing even faster than the overall increase.
Average credit card balances for every generation outstripped the 3% increase of the consumer price index over that same period. Consumers, facing sharp increases in the prices of many of the basics—food costs were up 5.7% and rents up 8.5%, according to the Bureau of Labor Statistics—may be adding to credit card balances by borrowing for more discretionary purchases, such as travel and entertainment.
While the increases are perhaps eyebrow-raising, consider that more consumers are now considered creditworthy enough for lenders to extend credit to them in the first place. Unemployment levels remain below 4%, which means more consumers are making an income, which is something lenders prefer to see before they’ll extend them credit.
But of course, that credit card use comes with the cost of rising APR for revolving balances, which have increased by an average of 5 percentage points since 2020. So although an increase in purchases and purchasing power are driving some of the credit card increase, higher interest rates are also an accelerant.
Where consumer debt levels may be headed in 2024
Overall, an observer probably shouldn’t expect a sharp increase in the total consumer debt levels in the next year, if only for one reason: Mortgages make up nearly two-thirds of the $16 trillion debt level, and those debt balances are growing the least in percentage terms, as both new and potential homeowners shy away from 7% mortgage rates, creating very new additional mortgage debt.
However, the growth rates of other types of debt for the coming months are difficult to anticipate. Changes in credit card debt balances will largely be a function of holiday spending, as always. Consumers may have the income to spend, yet may balk at adding even more interest-bearing purchases to their existing debt levels.
Predicting auto loan debt levels will depend on how much inventories are being roiled again, this time by strikes at some U.S. auto plants this fall. Even student loans, where payments have recently resumed after a three-year absence, are difficult to forecast, as borrowers and loan servicers navigate new student loan repayment plans available to federal student loan borrowers.
The following indicators will directly inform how much consumer credit balances will increase as we approach 2024:
Wages: Price increases on consumer goods outpaced wage increases in 2021 and 2022, and median incomes, after adjusting for inflation, have fallen over the past two years. Moreover, the decline was most pronounced for those with incomes below the median, so those earning the least fell furthest behind. However, unemployment remains low. Additionally, so far this year, workers have demanded—and in many cases, received—pay increases from employers, who still have many more potential job openings to fill than workers to fill them. In short, higher wages and nearly full employment will likely encourage consumers to spend more, even in the face of higher rates.Unemployment claims: Typically, increases in unemployment and economic slowdowns only start occurring when more than 300,000 workers weekly start a new unemployment claim. So far in 2023, claims have been well under that level, according to Labor Department data. If the trend continues, then there’s at least the chance that there will be more consumers with more discretionary income to spend.Holiday spending: We’re already receiving mixed messages about the holiday season from employers. Some, like Amazon, expect to hire more seasonal workers this holiday season, while retailers like Macy’s aren’t hiring as many in 2023 versus the prior holiday season. While this information may be telling us more about how consumers might spend rather than if consumers might spend, conflicting economic signals are par for the course in 2023.
With all that noted, there are still enough wild cards that could upend any reasonable short-term economic forecast, and we’ve already seen pandemics and international conflicts impact the cost of nearly everything so far this decade, including credit. One constant for consumers remains, though: Access to credit still depends in large part on a consumer’s credit history.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
This story was produced by Experian and reviewed and distributed by Stacker Media.