Warning signals are flashing for retailers who rely on consumer spending and credit to enable that spending.
The headline numbers in the Fed’s latest survey on consumer credit, known as the G.19 report, show that personal and household credit balances jumped $19.5 billion in January.
Acceleration of annualized rate of conversion
The overall growth rate of credit balances on an annualized basis increased by 4.7% in the month, significantly higher than December’s annualized rate of 0.2%. Digging a little deeper, we see that revolving debt (which, of course, includes credit card debt) grew at an annual rate of 7.6% in January, up from 2.6% in December. On a quarterly basis, revolving debt in the fourth quarter of last year increased by 18% from his 10.1% in the third quarter of 2023.
In contrast, non-revolving debt related to auto loans and mortgages rose an annualized 3.6% in January, rebounding from a 0.6% decline in December.
We note that increases in both “types” of credit may push already marginal consumers further marginal. Non-revolving debt has the advantage of having a fixed interest rate, which means the debt is stable. But they’re also tied to hefty tickets and the basics of everyday life like shelter (mortgages) and transportation (car loans) and student loans, which sit on the books for years. It can and does remain.
Revolving debt has fluctuated, and the interest rate on credit card accounts is near 23%, according to Fed data.
As for red flags, data from PYMNTS Intelligence shows that 17% of consumers who have trouble paying their monthly bills own a credit card. He accounts for 40% of people who have no problems paying their bills. Separately, low-income consumers are more likely to revolving their balances, with 40% doing so, while higher-income cardholders are less likely to do so, at just 24%. I understand.
As Karen Webster pointed out in a recent column, 31% of all U.S. consumers used a traditional credit card for their most recent grocery purchase. Recent data shows that even high-income consumers (those with an annual income of $100,000 or more) are more likely than lower-income consumers to use buy now, pay later (BNPL) providers to purchase food. , are 26% more likely to have used a credit card installment plan. . Therefore, balances in traditional credit conduits are accumulated and used to pay for consumables. When you use your credit card to pay for basic necessities, you have less “leftover” to use at other stores.
Meanwhile, as the Fed noted last month, gross delinquency rates rose in the final quarter of last year, with 3.1% of outstanding debt in some stage of delinquency at the end of December.
“Delinquency transition rates increased for all types of debt except student loans,” the Fed said. Annualized, about 8.5% of credit card balances and 7.7% of auto loans went into delinquency.
