Concerns that the U.S. economy could be heading for a recession mount as inflation remains high and the central bank moves to tighten monetary policy. Those pressures have put renewed focus on the financial health of consumers, as soaring prices for gas, groceries and other expenses eat away at savings and paychecks.
Credit cards often serve as a first place to look for signs of consumer distress. Still, it’s possible to get a vastly different picture of the delinquency rate (see chart), depending on how late payments have been reported, according to a new Deutsche Bank report.
A the high end, the New York Fed Consumer Credit Panel and Equifax data (NY Fed/Equifax) showed a 8.4% credit card delinquency rate in the first quarter of 2022, by including the portion of payments late 90 days or more.
The Federal Reserve reported a 1.7% delinquency rate, by focusing on credit cards past due 30 days or more for the same stretch, while credit rating agency Fitch focused on delinquencies of 60 days or more, reporting a small 0.6% rate.
As inflation pressures household budgets, consumers have seen a solid increase of 1.7% in total household debt in the first three months of 2022, according to the Federal Reserve Bank of New York.
Still, questions remain over how past due debt is reported. “A 90+ day rate should be lower than the 30+ day rate, all ese being equal, so what gives?” Deutsche analysts wrote, in a Friday client note.
Digging deeper, they noted that the NY Fed/Equifax consumer credit panel delinquency data included defaulted loans still in collections, while the Fed data from the Call reports and the Fitch ABS index didn’t.
No doubt, consumer delinquency rates will be closely watched by Wall Street in the months ahead, particularly with stocks continuing their slide for a third straight week as recession fears climb.
The S&P 500 index
on Friday booked its worst weekly drop since March 2020, the Dow Jones Industrial Average
and the Nasdaq Composite
finished slightly higher Friday, but also ended the week sharply lower.
Wall Street has been grappling with the impact of the May consumer-price index, a key indicator of the U.S. economy, which increased to an 8.6% annual rate, instead of cooling as many expected. The selloff also was attributed to the Federal Reserve’s decision on Wednesday to raise its policy rate by 75 basis points, the largest move since 1994.