According to a piece that was recently written by Juan Sanchez and Masataka Mori for the Federal Reserve Bank located in St. Louis, an article that was published in the “Regional Economist” in August 2023, went on to describe an increase in credit card delinquencies. The authors reveal that this trend has continued through this year as well.
Mori and Sanchez base their conclusion on an in-depth analysis of quarterly data that was taken from the Federal Reserve Bank in New York’s Consumer Credit Panel. If you’re new to the whole topic, a person’s credit card account is considered to be delinquent when payments on the balance are 30 or more days past due. The report reveals there are two variables examined, the first being the percentage of folks who are delinquent and the percentage of debt that is in delinquency, starting from the first quarter of 1999 all the way through the first quarter of 2024, which is a total period of 25 years, examining individuals between the ages of 20 to 64.
“In addition, we divide U.S. ZIP codes into deciles based on per capita aggregate gross income in 2019, derived from IRS individual income tax data. To better understand the broadness of the surge in credit card delinquency, we display data for the U.S., the Federal Reserve’s Eighth District, the richest 10% of ZIP codes and the poorest 10% of ZIP codes,” the authors state in the article.
The figure below depicts the percentage of people in delinquency. This is an important statistic because it describes the share of the population that is struggling to repay its debt. Delinquency rates are plotted on a logarithmic scale, which makes it easier to compare how they have changed over time despite differences in level.
It is worth noting that delinquency in the populations we examined showed an increase for the last eight to 11 quarters. Although widespread, the increase is more notable in the poorest ZIP codes, where delinquency grew from 11% in the second quarter of 2021 to 17.4% in the first quarter of 2024—58% in relative terms. Furthermore, in the first quarter of 2024, the U.S., Eighth District and poorest 10% of ZIP codes were at 94.8%, 93.7% and 93.6% of their peaks, respectively, for the period we examined.
The following figure shows the percentage of U.S. credit card debt in delinquency. This statistic is most commonly used to describe the incidence on lenders’ balance sheets. This variable grew in every region we examined for the last three to seven quarters. And for each region, the percentage of debt in delinquency has increased at least 32.2% in relative terms since its last trough. The richest 10% of ZIP codes have experienced the greatest proportional increase; their delinquency rate climbed from 4.8% in the second quarter of 2022 to 7.4% in the first quarter of 2024, or 54% in relative terms. For the poorest 10% of ZIP codes, the delinquency rate increased from 14.9% in the third quarter of 2022 to 21% in the first quarter of 2024, or 41% in relative terms.
What is causing this issue to increase? One explanation offered by Sanchez and Mori is that the numbers are actually just now starting to climb back to historically normal levels after the super low numbers we saw during the coronavirus pandemic, which was likely the result of temporary assistance programs.
The current levels of credit card delinquency are significantly higher than they were before the pandemic started, which indicates a trend that began before COVID hit is now picking up steam.
The post then reveals that research is being done to see how much of an impact an increase in higher interest rates is playing in the rise of this form of delinquency as well.
Well, I can tell you this much. If a person has to practically sell their soul in order to buy two gallons of milk, cereal, bread, and some lunch meat, and are living paycheck-to-paycheck, paying off the credit card bill is going to present a significant challenge.
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