There’s A Crash Coming, Especially Among Millennials

Just as we dig into SEC documents and earnings calls to decide on the market-crushing stocks we suggest, The Juice goes beyond the headlines on one of our other going concerns — consumer, particularly credit card debt. 

The headline reads: Credit card balances spiked in the third quarter to a $1.08 trillion record. That’s true and bad enough. However, the rose-colored spin we often see in reaction to these headlines concerns us. 

For example, this is representative of the worrisome and naively positive spin, via a blogger, who we’ll leave unnamed, simply because he represents just one of many rationalizations of the current debt debacle:

When you include the debt, the delinquency rates, while rising, continue to reflect a normalization back to prepandemic levels.

In other words, while the “flow” into new delinquency has been picking up, the “stock” of delinquencies remains below prepandemic levels.

At what point do we stop comparing things to before the pandemic? 

The Juice thinks we should have stopped doing this a long time ago. For a while it made sense for companies, banks and economists to make 2019 comparisons. Now, it’s just convenient. The only prepandemic-related reflection we should be making is super straightforward: dwindling savings leading to increased credit card as a way for large swaths of the consumer population to make ends meet. 

That $1.08 trillion headline number comes from a recent NY Fed report. In the blog post accompanying that report, the Fed makes some pre-pandemic comparisons. And we’re just not seeing any optimism in them:

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 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 …

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.

This tells us — yet again — something we’ve known for well over a year: The writing on the wall (call it the trend) could not be more clear. Or scary. 

And the Fed, who you might expect to sugarcoat the data, doesn’t. They sum it up in the sober fashion the data warrants:

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.

What makes this even more troubling is that credit card interest rates are at an all-time high of above 20%. This means carrying credit card debt becomes more costly, making it more challenging to pay down balances. 

The Bottom Line: This is why you read The Juice. We don’t stop at the headlines or a generic broad stroke of the data. 

Absolutely, if you look at household debt as a whole — particularly including mortgages — you can find “good” news. However, we all know how it works. 

If you’re facing personal financial trouble, the last thing you stop paying is your housing payment — rent or mortgage. Because the number one need and biggest pain in the ass to get behind on is housing. Then, you pay for your car. The rest — food, other necessities, discretionary spending — can go on credit cards. So, it tends to be delinquencies on credit card debt that go up first. Particularly — and the Fed data also showed this — among people with the largest balances. When things get really tight and you’re faced with a choice, the first thing you stop paying is the credit card.  

Could any of this be more obvious or concerning? 

Let us know — at the feedback link below — if (a) you’re worried about consumer debt and (b) if you’re facing some type of debt problem. If we use your story in a future Juice, don’t worry, we’ll keep you anonymous.

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