Record High Delinquencies on Credit Card Payments Indicate Growing Affordability Challenges for Americans
Americans are facing increasing difficulties in making payments on their credit card debt, signaling growing affordability challenges, according to a recent report from the Federal Reserve. The report reveals that credit card delinquencies have surged to a record high, with a significant number of accounts showing past due debt payments at the 30, 60, and 90-day marks. This data, released on April 10 by the Federal Reserve Bank of Philadelphia, highlights the financial stress experienced by credit card holders.
Additionally, the report indicates that a growing number of accounts are only making minimum payments, reaching a record high. This trend coincides with an increase in nominal credit card balances, suggesting that Americans are increasingly relying on credit cards to finance their daily expenses. The persistently high inflation rates, which have been accelerating since March, have put additional strain on household budgets, forcing people to spend more on essential items like groceries.
Official U.S. government figures show that food price inflation over the past four years has amounted to 24.9 percent. However, an analysis by The Wall Street Journal estimates that the true figure is as high as 36.5 percent for a basket of commonly purchased supermarket goods. This further exacerbates the financial challenges faced by American consumers.
The survey conducted by the New York Federal Reserve in March revealed that American consumers have growing concerns about their debt and job security. The average perceived probability of missing a minimum debt payment over the next three months has risen to 12.9 percent, the highest reading since the onset of the COVID-19 pandemic. Respondents aged 40-60 and those earning less than $50,000 per year experienced the highest increase in this concern.
Consumers also expressed greater pessimism about future credit access, with more individuals expecting tighter lending conditions in the coming year. The Philly Fed credit card report supports these concerns, indicating that current credit scores among cardholders have fallen to their lowest level since 2020. This suggests that further deterioration in credit card performance may be on the horizon.
The survey also revealed growing fears about job loss. The mean perceived probability of losing one’s job in the next year reached its highest level since 2020 at 15.7 percent. At the same time, the perceived probability of finding a new job if one’s current job was lost fell for the third consecutive month to 51.2 percent, the lowest reading in nearly three years. This aligns with recent labor market data, which showed a 120 percent increase in job-cut announcements in the first quarter of this year compared to the final quarter of 2023.
In terms of inflation, recent data indicates that price pressures remain high, indicating that inflation remains persistent. The Consumer Price Index (CPI), a common measure of retail inflation, rose to 3.5 percent in February. Future inflation expectations are mixed, with one-year-ahead expectations remaining unchanged at 3 percent, while three-year-ahead expectations rose to 2.9 percent.
JPMorgan CEO Jamie Dimon has warned that inflationary pressures could last longer than expected, potentially having negative consequences for the U.S. economy. In an April 8 letter to shareholders, Dimon expressed concern about factors such as deglobalization and ongoing deficit spending by the Biden administration. He urged businesses to plan for a wide range of interest rates, from 2 percent to as high as 8 percent or more. The Federal Reserve has already hiked interest rates to a range of 5.25-5.5 percent, but market predictions suggest cuts rather than more hikes this year.
Investors should also prepare for a potential soft landing or a scenario where inflation remains high despite an economic recession, known as “stagflation.” Dimon noted that stagflation would bring higher interest rates, increased credit losses, lower business volumes, and more difficult market conditions.
Despite these challenges, the U.S. economy expanded at a solid 3.4 percent pace in the fourth quarter of 2023. The Federal Reserve Bank of Atlanta’s real-time estimate of U.S. gross domestic product (GDP) for the first quarter of this year stands at 2.4 percent as of April 10.
In conclusion, the record high delinquencies on credit card payments reflect the growing affordability challenges faced by Americans. Rising inflation rates, stagnant wages, and concerns about job security have put significant strain on household budgets. As credit card balances increase and more individuals struggle to make minimum payments, it is crucial for policymakers and financial institutions to address these affordability issues and support American households through these challenging times.
