Mounting student debt and credit card delinquencies could sap consumer spending and undermine economic growth.
More people in the United States appear to be struggling to keep up with their credit card and student loan debt payments. That could weigh on consumer spending and threaten one of the strongest drivers of economic growth.
US credit card balances grew to $868bn in the second quarter, from $848bn in the previous three months, and the proportion of those balances seriously past due is on the rise, according to Federal Reserve Bank of New York data released on Tuesday.
US consumer debt has continued to hit new peaks, rising $192bn, or 1.4 percent, to $13.86 trillion in the second quarter. The figure is higher than the previous peak of $12.68 trillion before the 2008 global financial crisis, according to the New York Fed’s US household debt and credit report.
While total student loan balances decreased slightly, from $1.49 trillion to $1.48 trillion in the quarter, the share of those loans being left unpaid for several months increased.
Payments on some 9.9 percent of student loan balances started being at least 90 days late during the three months ending in June, compared with 9.4 percent in the January-March period.
A comparable measure shows credit card users are struggling. Payments on about 5.2 percent of those balances were 90 days overdue in the latest quarter, up from 5.0 percent in the first quarter. The figure has been on the rise since 2017.
Similar delinquency rates declined for auto loans, home equity lines of credit, mortgages and other debt categories.
Consumer spending accounts for roughly two-thirds of activity in the world’s largest economy, and a growing job market and higher wages have helped keep the longest US economic expansion on record on track.
But fears the US-China trade war and other issues could cloud that economic picture led the Federal Reserve to cut interest rates for the first time since 2008 late last month. That could ease pressures for some borrowers and cause consumers to load up on more debt to make purchases, providing a short-term stimulus for the economy.
“We may see more consumers making a large purchase they had been putting off because it seems relatively more affordable,” said Dieter Scherer, a financial planner at Adaptive Wealth Solutions LLC.
“We’ll likely see credit card rates decline by a small amount in response to the cut in the target federal funds rate. However, charge-off rates have been increasing over the past few years, which has also contributed to increased credit card rates among less creditworthy consumers. So, I’d expect the effect to be more muted among those with low credit scores.”
SOURCE: Reuters news agency