The share of US credit card and auto loan debt falling into delinquency has reached a new high amid record housing debt levels. The uptick may add further pressure on an economy grappling with the effects of higher-for-longer interest rates.

Nearly 9% of credit card balances became 30 or more days delinquent during the first three months of 2024, the highest number since the first quarter of 2011, according to data released by the Federal Reserve Bank of New York on May 14. For auto loans, that debt share is nearly 8%, the highest since the fourth quarter of 2010.

The surge in debt and delinquencies is not a sign of widespread stress so far, with the domestic labor market remaining historically robust and wage growth continuing to outpace inflation. Still, economists warn delinquencies will rise further and pose a potential threat to the economy's strength should the labor market and wage growth cool.

"The combination of subdued job growth, sluggish income progression, and diminished savings could lead to increased delinquencies and a potential retrenchment in consumer spending," said Gregory Daco, chief economist at EY-Parthenon.

Debt climbs

Credit card and auto loan debt together make up just more than 15% of US household debt, which climbed to a record $17.69 trillion in the first quarter of 2024. More than 70%, or $12.44 trillion, of the US household debt in the first quarter was mortgage debt. About 3.2% of mortgage debt transitioned into 30 or more days delinquent in the first quarter, the highest since the first quarter of 2020 but still relatively low.

In the first quarter of this year, nearly 7% of credit card balances transitioned into serious delinquency — 90 days or more delinquent — the highest since the second quarter of 2011, while about 3% of auto loans were seriously delinquent, the highest since the second quarter of 2010.

Americans using their credit cards the most had the highest delinquency rates, New York Fed economists wrote in a May 14 blog post. Borrowers who were up to date with their credit card payments in the first quarter of 2024 had a median credit card utilization rate of 13% in the previous quarter. By comparison, those who were newly delinquent had a median utilization rate of 90%, as those with less cash flow are more likely to use all available credit, the economists wrote.

"Since the economy reopened in 2022 and consumption was very strong in 2022 and 2023, credit card balances increased again, resulting in a rise in the share of maxed-out borrowers and their balances," the economists wrote. "These shares remain slightly lower than the pre-pandemic level but are edging back up."

The Fed is holding benchmark interest rates at their highest level in decades as it waits for inflation to fall closer to its goal of 2% annual growth. While the latest inflation reading was in line with expectations, Fed watchers do not expect rates, which influence broader borrowing costs, to decrease until later in the year.

The rise in auto and credit card defaults may not be a harbinger of broader economic trouble and overall debt service still remains relatively low, said Michael Crook, chief investment officer at Mill Creek Capital Advisors.

"Most households are not getting hit by higher debt costs," Crook said. "However, I can't imagine that this is something the Fed really wants to see."

Possible hit to spending

S&P Global Market Intelligence economists expect credit card and auto loan delinquencies to continue to rise this year as interest rates are expected to remain high for longer.

While a recession may not be imminent, a slowdown in spending could hit eventually, said Michael Zdinak, an economist who leads the US consumer markets service at Market Intelligence. GDP growth will slow from 3.3% in the fourth quarter of 2023 to 1.7% by the end of 2024 as monetary policy weighs on consumer spending, Zdinak said.

The New York Fed data shows that the total US credit card balance was at $1.12 trillion in the first quarter, down slightly from the fourth quarter of 2023 as consumers likely paid down debt accumulated at the end of last year. Still, credit card balances in the first quarter of 2024 were up about 13% from a year earlier, which Zdinak said reflects continued, robust demand for credit amid a strong jobs market.

"Higher nominal balances reflect not just higher prices and expanded access to credit, but a consumer who feels secure enough in the current labor market to continue spending," Zdinak said. "If unemployment were to spike suddenly, these balances could amplify a slowdown in spending, but as it stands both are pushing back against the Fed's effort to cool the economy down."