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Credit Card Delinquencies Continue to Rise—Who Is Missing Payments?

This morning, the New York Fed’s Center for Microeconomic Data released the 2023:Q3 Quarterly Report on Household Debt and Credit. After only moderate…

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Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Belicia Rodriguez, Joelle Scally, Wilbert van der Klaauw, and Crystal Wang

Decorative Image: Male at kitchen table with credit card and phone in hands
This morning, the New York Fed’s Center for Microeconomic Data released the 2023:Q3 Quarterly Report on Household Debt and Credit. After only moderate growth in the second quarter, total household debt balances grew $228 billion in the third quarter across all types, especially credit cards and student loans. Credit card balances grew $48 billion this quarter and marked the eighth quarter of consecutive year-over year increases. The $154 billion nominal year-over-year increase in credit card balances marks the largest such increase since the beginning of our time series in 1999. The increase in balances is consistent with strong nominal spending and real GDP growth over the same time frame. But credit card delinquencies continue to rise from their historical lows seen during the pandemic and have now surpassed pre-pandemic levels. In this post, we focus on which groups have fallen behind on debt payments and discuss whether rising delinquencies are narrowly concentrated or broad based. The Quarterly Report on Household Debt and Credit (page 13) shows the percentage of balances transitioning to delinquency by loan type, which are reported as four-quarter moving sums to avoid seasonal trends. These series reached historic lows for all loan types during 2021 due to large fiscal transfers, reduced consumption opportunities, and broad-based forbearance. Apart from student loans, which were aided by administrative forbearance that only recently ended, new delinquencies for all loan types have risen since. Rising delinquencies were inevitable from historic lows, but it has been less clear how high and until when they might rise. In our last blog post, we hinted that there were some signs of stabilization for auto loan and credit card delinquencies. And while auto loan delinquency does seem to be stabilizing for all except the young, moderating new credit card delinquencies in the first and second quarter were followed by higher delinquency transitions in the third quarter. The chart below (and all subsequent charts) shows the person-level rate of transitions from current status last quarter to delinquency in this quarter. Notably, this differs from the credit card series in page 13 of the Quarterly Report since these are not balance-weighted and do not account for seasonal trends. Historically, new credit card delinquency transitions peak in the fourth quarter and decline in first and second quarter before larger increases over the third and fourth quarters. The series shows that 2 percent of credit card users moved from current status in the second quarter of 2023 to thirty or more days past due on at least one account in the third quarter. This is up from roughly 1.7 percent in the first and second quarters of 2023, and higher than the third quarter average between 2015-19 of 1.7 percent.

The Share of Newly Delinquent Credit Card Users Rose in the Third Quarter and Exceeds the Pre-Pandemic Average

Share of credit card borrowers who are newly delinquent (in percent)

Source: New York Fed Consumer Credit Panel/Equifax.

Who Is Driving the Rising Credit Card Delinquencies?

In the next series of charts, we explore the variation in this delinquency transition rate for several different groups of credit card users. First, we look at delinquencies by birth generation. While Baby Boomers (born 1946-64), Generation X (born 1965-79), and Generation Z (born 1995-2011) credit card users have delinquency rates similar to their pre-pandemic levels and trends, Millennial (born 1980-94) credit card users began exceeding pre-pandemic delinquency levels in the middle of last year and now have transition rates 0.4 percentage point higher than in the third quarter of 2019.

Millennial Credit Card Delinquency Exceeds Pre-Pandemic Levels while Baby Boomers, Generation X, and Generation Z Are at or near Their 2019 Averages

Share of credit card borrowers who are newly delinquent (in percent)

Source: New York Fed Consumer Credit Panel/Equifax. Notes: Credit card users are categorized into generations using their birth year. Baby Boomers are those born between 1946 and 1964, Generation X are 1965 to 1979, Millennials are 1980 to 1994, and Generation Z are 1995 to 2011. 
The chart below shows how credit card delinquencies have evolved by zip median income. We categorize all zip codes into four groups ranked by area income with the first quartile representing the lowest and the fourth quartile representing the highest income. The lowest-income areas persistently have the highest delinquency rates, but all four quartiles are now above their pre-pandemic levels. Although not shown here, the pattern for delinquency rates by U.S. Census region is similar to the zip income pattern. The South has higher delinquency rates over the time series, but all regions have new credit card delinquency rates higher than their pre-pandemic averages and are evolving similarly.

Delinquency Rates Are Rising Fastest for Lower-Income Areas, but Each Income Quartile Area Has Rates at or above Their 2019 Levels

Share of credit card borrowers who are newly delinquent (in percent)

Sources: New York Fed Consumer Credit Panel/Equifax; American Community Survey. Notes: Credit card users are categorized into zip income quartiles by ranking zip code median income from lowest to highest and splitting zip codes into four equally sized groups by population.
Next, we look at how balances have evolved based on borrower credit profiles. The chart below shows the delinquency transition rates for card users by their outstanding total credit card balances in the previous quarter. Generally, those with higher total balances are more likely to transition to delinquency, and recent trends are consistent with this pattern. Those with combined balances over $20,000 have the highest transition rate since the beginning of 2022 both in the level and the pace of increase, but the prevalence of balances this large is low at 6 percent of credit card holders. Meanwhile, borrowers with balances of less than $5,000, 68 percent of credit card borrowers last quarter, have recent delinquency transition rates similar to their pre-pandemic levels.

Those with the Largest Credit Card Balances Were the Most Likely to Fall behind but Make Up a Small Share of Credit Card Users

Share of credit card borrowers who are newly delinquent (in percent)

Source: New York Fed Consumer Credit Panel/Equifax. Notes: Credit card users are categorized into balance groups using their total credit card balance in the previous quarter. Those who had a zero balance in both the current quarter and previous quarter are excluded (as they cannot transition to delinquency). Borrowers with balances over $1 million are excluded.
The last of these charts shows the delinquency transition rates for credit card users based on whether a borrower also has other types of debt. The share of mortgage holders with a new credit card delinquency is only slightly higher than before the pandemic. Meanwhile, borrowers with auto loans (gold line) or student loans (red line) were more likely to fall behind on their loans than before the pandemic. This was especially the case for those with student loans and auto loans (shown in light blue). This group’s transition rate into a credit card delinquency is 0.6 percentage point higher than it was prior to the pandemic. These repayment difficulties will likely continue to mount for student loan borrowers, as shown in our recent special survey of such borrowers, now that student loan payments have resumed.

Credit Card Delinquencies Are Rising Particularly Quickly for Those with Auto and Student Loans

Share of credit card borrowers who are newly delinquent (in percent)

Source: New York Fed Consumer Credit Panel/Equifax. Notes: Credit card users are categorized into groups based on whether they had a nonzero balance for other debt types. Borrowers can contribute to multiple groups depending on which loans they hold.

Conclusion

Delinquency rates on most credit product types have been rising from historic lows since the middle of 2021. The transition rate into delinquency remains below the pre-pandemic level for mortgages, which comprise the largest share of household debt, but auto loan and credit card delinquencies have surpassed pre-pandemic levels and continue to rise. While the growth in auto loan delinquency has appeared to moderate over recent quarters, credit card delinquency rates have risen at a sharper pace. Even though the increase in delinquency appears to be broad based across income groups and regions, it is disproportionately driven by Millennials, those with auto or student loans, and those with relatively higher credit card balances. The labor market and the general economy have remained resilient throughout this period which makes pinning down the causes of rising delinquencies rates more difficult. Whether this is a consequence of shifts in lending, overextension, or deeper economic distress associated with higher borrowing costs and price pressures is an important topic for further research. We will continue to monitor conditions for household balance sheets for further signs of distress.

Chart Data

Photo: portrait of Andrew Haughwout

Andrew F. Haughwout is the director of Household and Public Policy Research in the Federal Reserve Bank of New York’s Research and Statistics Group.

Donghoon Lee is an economic research advisor in Consumer Behavior Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Daniel Mangrum is a research economist in Equitable Growth Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Belicia Rodriguez is a senior research analyst in the Federal Reserve Bank of New York’s Communications and Outreach Group.

Photo: portrait of Wilbert Vanderklaauw

Wilbert van der Klaauw is the economic research advisor for Household and Public Policy Research in the Federal Reserve Bank of New York’s Research and Statistics Group.

Joelle Scally is a regional economic principal in the Federal Reserve Bank of New York’s Research and Statistics Group.

Crystal Wang is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post: Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Belicia Rodriguez, Joelle Scally, Wilbert van der Klaauw, and Crystal Wang, “Credit Card Delinquencies Continue to Rise—Who Is Missing Payments?,” Federal Reserve Bank of New York Liberty Street Economics, November 7, 2023, https://libertystreeteconomics.newyorkfed.org/2023/11/credit-card-delinquencies-continue-to-rise-who-is-missing-payments/.

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Disclaimer The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

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Guest Contribution: “The Fed Approaches the End of the Rate Hiking Cycle”

Today, we present a guest post written by David Papell and Ruxandra Prodan, Professor and Associate Instructional Professor of Economics at the University…

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November 12, 2023

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Today, we present a guest post written by David Papell and Ruxandra Prodan, Professor and Associate Instructional Professor of Economics at the University of Houston.
  The Federal Open Market Committee (FOMC) maintained the target range for the federal funds rate (FFR) at 5.25 – 5.5 percent in its November 2023 meeting. While the September 2023 Summary of Economic Projections (SEP) projected a range between 5.5 and 5.75 percent by the end of 2023, it clear that the Committee will wait before deciding whether to end the rate hiking cycle or to have one more rate increase at a subsequent meeting. There is widespread agreement that the Fed fell “behind the curve” by not raising rates when inflation rose in 2021, forcing it to play “catch-up” in 2022. “Behind the curve,” however, is meaningless without a measure of “on the curve.” In the latest version of our paper, “Policy Rules and Forward Guidance Following the Covid-19 Recession,” we use data from the SEP’s from September 2020 to June 2023 to compare policy rule prescriptions with actual and FOMC projections of the FFR. This provides a precise definition of “behind the curve” as the difference between the FFR prescribed by the policy rule and the actual or projected FFR. We analyze four policy rules that are relevant for the future path of the FFR in the post: The Taylor (1993) rule with an unemployment gap is as follows, where Rt is the level of the short-term federal funds interest rate prescribed by the rule, πt is the inflation rate, πLR is the 2 percent target level of inflation, ULRt is the 4 percent rate of unemployment in the longer run, Ut is the current unemployment rate, and rLRt is the ½ percent neutral real interest rate from the current SEP. Yellen (2012) analyzed the balanced approach rule where the coefficient on the inflation gap is 0.5 but the coefficient on the unemployment gap is raised to 2.0. The balanced approach rule received considerable attention following the Great Recession and became the standard policy rule used by the Fed. These rules are non-inertial because the FFR fully adjusts whenever the target FFR changes. This is not in accord with FOMC practice to smooth rate increases when inflation rises. We specify inertial versions of the rules based on Clarida, Gali, and Gertler (1999), where p is the degree of inertia and  is the target level of the federal funds rate prescribed by Equations (1) and (2). We set p as in Bernanke, Kiley, and Roberts (2019). Rt-1 equals the rate prescribed by the rule if it is positive and zero if the prescribed rate is negative. Figure 1 depicts the midpoint for the target range of the FFR for September 2020 to September 2023 and the projected FFR for December 2023 to December 2026 from the September 2023 SEP. Following the exit from the ELB to 0.375 in March 2022, the FFR rose to 5.375 in September 2023 and is projected to rise to 5.625 in December 2023 before falling to 4.875 in December 2024, 3.875 in December 2025, and 2.875 in December 2026. The figure also depicts policy rule prescriptions. Between September 2020 and September 2023, we use real-time inflation and unemployment data that was available at the time of the FOMC meetings. Between December 2023 and December 2026, we use inflation and unemployment projections from the September 2023 SEP. The differences in the prescribed FFR’s between the inertial and non-inertial rules are much larger than those between the Taylor and balanced approach rules. Figure 1. The Federal Funds Rate and Policy Rule Prescriptions. Panel A. Non-Inertial Rules Policy rule prescriptions are reported in Panel A for the non-inertial Taylor and balanced approach rules. They are not in accord with the FOMC’s practice of smoothing rate increases when inflation rises. The prescriptions for the two rules are identical at the ELB through March 2021. The FOMC fell behind the curve starting in June 2021 when the prescribed FFR increased from the ELB of 0.125 to 2.625 for the Taylor rule and to 0.375 for the balanced approach rule while the actual FFR stayed at the ELB. The policy rule prescriptions sharply increased through 2021 and peaked in March 2022 to 7.875 for the Taylor rule and 8.125 for the balanced approach rule when the FFR first rose above the ELB to 0.375. The gap also peaked in March 2022 at 750 basis points for the Taylor rule and 775 basis points for the balanced approach rule. The gap narrowed considerably between March 2022 and September 2023 as the FFR rose from 0.375 to 5.375 while the Taylor rule prescriptions fell to 6.125 and the balanced approach rule prescriptions fell to 6.625. Looking forward, the gap between the FFR projections and the policy rule prescriptions reverses in December 2023 and the FFR projections are above the policy rule prescriptions through December 2026. Figure 1. The Federal Funds Rate and Policy Rule Prescriptions. Panel B. Inertial Rules Panel B reports the results for the inertial Taylor and balanced approach rules. They are much more in accord with the FOMC’s practice of raising the FFR slowly when inflation rises. The prescriptions for the two rules are identical at the ELB through March 2021 and rise to 0.375 for the Taylor rule in June 2021. The FOMC fell behind the curve starting in September 2021 when the prescribed FFR increased to 0.875 for the Taylor rule and 0.625 for the balanced approach rule while the actual FFR stayed at the ELB. The gap between the policy rule prescriptions and the FFR peaked in March 2022 at 200 basis points when the prescribed FFR was 2.325 for both rules while the FFR first rose above the ELB to 0.375. The Fed is no longer behind the curve. The gap narrowed steadily and, in September 2023, the FFR was equal to the inertial balanced approach rule prescription and 25 basis points above the inertial Taylor rule prescription. As of the November 2023 meeting, it is unclear whether the FOMC will follow the prescriptions in the September 2023 SEP and raise the FFR to 5.625 or leave it unchanged at 5.375 at the December 2023 meeting. If the FOMC raises the FFR to 5.625, it will be 25 basis points above the balanced approach rule prescription and 50 basis points above the Taylor rule prescription. If the FOMC leaves the FFR unchanged at 5.375, it will be equal to the balanced approach rule prescription and 25 basis points above the Taylor rule prescription. The inertial rules prescribe a much smoother path of rate increases from September 2021 through June 2023 than that adopted by the FOMC. If the Fed had followed the inertial Taylor or balanced approach rule instead of the FOMC’s forward guidance, it could have avoided the pattern of falling behind the curve, pivot, and getting back on track that characterized Fed policy during 2021 and 2022. Looking forward, the FFR projections from the September 2023 SEP are generally 25 basis points above the policy rule prescriptions through June 2025, equal to the policy rule prescriptions through March 2026, and 25 basis points below the policy rule prescriptions through December 2026. The current and projected FFR is in accord with prescriptions from inertial policy rules.
This post written by David Papell and Ruxandra Prodan.

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Beloved Las Vegas, Las Vegas Strip tradition closer to the end

Maybe it’s time to let the old ways die. That’s a line sung by Bradley Cooper’s character in the hit "A Star Is Born" remake he and Lady Gaga co-starred…

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Maybe it's time to let the old ways die. That's a line sung by Bradley Cooper's character in the hit "A Star Is Born" remake he and Lady Gaga co-starred in. And in many ways, that's what slowly happens on the Las Vegas Strip and eventually throughout the city as the old ways, the so-called classic Las Vegas, get relegated to the fringes before they eventually disappear. The classic Las Vegas showgirl review followed this arc. First, it was pretty much a Strip necessity to have showgirls as part of your big headline show. Then it became more of a novelty, then it became nostalgia and, finally, it ended.

Related: Las Vegas Strip star makes surprise residency decision

When "Jubilee," the last showgirls show on the Las Vegas Strip, closed in 2016, an NPR article about it was headlined "Trapped in Time." It was an art form with a peak that had passed, which now exists solely in the semiparody/semicreepy women dressed in showgirl outfits on the Strip trying to sell photographs (and maybe more). Lots of other Las Vegas traditions are just memories. Slots are no longer played with coins, for example, which has changed what a Las Vegas resort casino sounds like. Instead of the the clanging of quarters, you now get a DJ's playlist. You can no longer get $0.99 shrimp cocktail, and a lot of the old food deals designed to get people into a casino have gone away. That also includes another Las Vegas tradition that was dying before the pandemic and has seen its demise hastened by changing trends. The Arena Media Brands, LLC and respective content providers to this website may receive compensation for some links to products and services on this website.
Showgirls have disappeared from Las Vegas' entertainment lineup.Image source: Shutterstock

Las Vegas is no longer the land of buffets

In the 1990s and 2000s, every resort casino seemed to have a buffet. Most of them were closer to Golden Corral than fine dining. But the idea was to keep people in the casino, get them fed (maybe even with a comp) and then get them back on the casino floor. As Las Vegas has become a culinary capital of the world, Caesars Entertainment, MGM Resorts International MGM, Wynn Resorts, and the other Las Vegas Strip players realized that they could make more money from low- and mid-tier gamblers by selling them Guy Fieri, Wolfgang Puck, Bobby Flay, Gordon Ramsay and other big-name celebrity chefs than by having them playing slots. That has made the space once devoted to buffets valuable real estate that makes more sense as a high-end restaurant than it does as a low-end all-you-can-eat eatery. "On the Las Vegas Strip, only eight buffets remain (the Bacchanal at Caesars Palace, The Buffet at Bellagio, Wicked Spoon at Cosmopolitan, The Buffet at Wynn Las Vegas, the MGM Grand Buffet, the Buffet at Excalibur, the Circus Buffet at Circus Circus, and The Buffet at Luxor) where 18 once stood," Casino.org reported. VISIT LAS VEGAS: Are you ready to plan your dream Las Vegas Strip getaway? Most of those, aside from from Excalibur and Circus, are very high-end affairs that can cost nearly (or over for some special servings) $100. Buffets have met the same fate off the Strip, and another has closed to make way for a new trend, a food hall.

Rio is closing its buffet

When Resorts World opened on the North Strip during the pandemic, it did not have a buffet. Instead, it offered a massive food hall that contained more than 40 food and beverage options. This offered people choice — maybe a better selection than even the best buffets — by grouping lots of options in one space. At Resorts World's food hall you can even order from multiple places from your phone, and then collect your food when it is ready. It's an upscale take on the old classic that comes with higher costs for customers, but also higher quality. Now, Rio, which was just transferred from Caesars operating it to a new owner, Dreamscape, has decided to close its Carnival World Buffet and replace it with Canteen Food Hall. F1? SUPER BOWL? MARCH MADNESS? Plan a dream Las Vegas getaway. The new concept will open in January. Rio is undergoing a $350 million transformation under its new owners. Canteen will offer a wide array of choices with a ramen shop, a Mexican eatery focused on burritos, the famed Tony Luke's cheesesteak shop and a burger concept, as well as different take on chicken tenders, and a stall selling Japanese street food. Receive full access to real-time market analysis along with stock, commodities, and options trading recommendations. Sign up for Real Money Pro now.

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Southwest Airlines makes major change that passengers won’t like

Travelers should act quickly before the holidays.

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November 11, 2023

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One major U.S. airline has, in the recent past, demonstrated a tough relationship with the winter holiday season.

Last December, Southwest Airlines LUV experienced a serious crash that caused widespread disruption for its passengers.

Related: Another fast-food operator files Chapter 11 bankruptcy

The airline ended up canceling a huge number of flights during one of the busiest times of the year for travel.

Outdated computer systems had apparently struggled to deal with an increase in bookings, hurting Southwest's ability to manage its flights.

The cancellations had a ripple effect, stranding passengers nationwide and separating them from their luggage.

The airline has implemented several steps to prevent a repeat of these incidents, but now the carrier appears to have a labor issue on its hands right before the 2023 holiday season.

Southwest's pilots have begun preparing to strike. Those preparations include opening a Regional Strike Center in Dallas, the Southwest Airlines Pilot Association has announced.

And now, another change affecting the carrier's passengers is on its way.

People line up at a Southwest Airlines counter.

Image source: Paul Hennessy/Anadolu Agency via Getty Images

Southwest Airlines devalues its points by about 4%

Members of Rapid Rewards, Southwest's points earning program, are able to redeem points they earn by flying, or by spending with Southwest's partners.

They can use these points for flights, hotel stays and rental cars through Southwest and for gift cards, merchandise and other items through participating credit cards.

Now, however, the airline is devaluing its points, negatively impacting members.

But there is still time to book flights before the change is implemented on Jan. 1, 2024.

"Southwest award tickets are priced based on the cash value of that same ticket," wrote travel influencer Danny the Deal Guru on his website. "Rapid Rewards points are valued at about 1.4 cents-per-point. That means that if a flight costs $140, then you would be able to book it with 10,000 Rapid Rewards points. That might vary slightly based on routes."

But the carrier now says, beginning on the first day of the new year, that the points required per dollar of base fare will increase by approximately 4%.

"So with this 4% increase, that same $140 flight that we took as an example above, will cost 10,400 Rapid Rewards points starting next year," the website wrote. "That's not a huge devaluation, but it is a devaluation nonetheless. That brings the value of Rapid Rewards points to about 1.35 cent each."

Southwest last devalued points during the pandemic two years ago, after allowing passengers to convert their travel credits to points.

"After its historic operational meltdown a year ago the airline gave points to passengers," wrote Gary Leff on View From the Wing. "Their apology for last Christmas will be worth 4% less for anyone saving their points."

Leff also provided some historical perspective on the move.

"With this change Southwest will have devalued about 43% in 12 years since launching 'Rapid Rewards 2.0,'" he wrote. "And there’s really no good reason to devalue their points other than greed. Currently each point is worth around 1.2 cents apiece towards base airfare, or closer to 1.4 cents when factoring taxes saved."

Southwest travelers with award travel to book ought to consider doing it soon.

"There's little downside to redeeming your Southwest points now, before the January 1 4% devaluation, and you may come out ahead," Leff wrote.

"At least they've given some advance notice."

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