Feeling the Squeeze

September 12, 2023 | Chad Sheaffer, CFA, CAIA, Senior Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Combination 3-line and area chart showing interest payments as a percentage of household income and new delinquency rates for various forms of U.S. consumer debt. Chart subtitle: Interest payments as a percentage of household income have increased to a 15-year high while delinquencies have risen to pre-pandemic levels. Chart source: Bureau of Economic Analysis, Federal Reserve Bank of New York Center for Microeconomic Data as of June 30, 2023. Chart visual description: Data is quarterly; displayed in 9-month increments on x-axis from Mar-03 to Jun-23. Left Y-axis is labeled “Percentage of Household Income” and ranges from 0% to 5%. Right Y-axis is labeled “New 30+ Day Delinquency” and ranges from 0% to 16%. Interest Payments (Excl. Mortgages) corresponds to left Y-axis and is plotted in solid dark gray area. Lines plot three other data series corresponding to right Y-axis: teal for Auto Loans, light teal for Credit Cards, and dark teal for Student Loans. Chart data description: Interest Payments have increased sharply since September 2021 following rate hikes by the Federal Reserve. Auto Loans and Credit Cards lines have generally followed same slope since. Student Loans sharply decreased following payment pauses, and have remained near flat. Latest data points as of June 2023: Interest Payments at 4%. Auto Loans at 7%. Credit Cards at 7%. Student Loans at 1%. Please contact us for the full dataset. End chart description. See disclosures at end of document.

As investors and economists meticulously analyze data to predict future actions of the Federal Reserve, the domestic economy has maintained resiliency thanks in part to robust consumer spending in recent months. That said, challenges exist for the American public, including the fact that consumer interest payments now constitute an increasing proportion of U.S. household incomes. According to the Bureau of Economic Analysis, this figure, which excludes payments related to mortgage debt, reached 4.3% as of the most recent report published on July 31. Incidentally, this marks the highest level observed since 2008 during the Global Financial Crisis.

To this point, U.S. households have managed to withstand these increases in debt servicing payments while simultaneously confronting elevated levels of inflation. However, there are warning signs that this resilience may not be sustainable, particularly among lower-income households that have depleted robust savings amassed during the pandemic. One indication that households are beginning to feel financially squeezed is the fact that delinquency rates have escalated over the last few quarters. According to the Federal Reserve, new 30+ day delinquency rates for consumer credit card debt and auto loans have spiked since bottoming out in late 2021, reaching 7.2% and 7.3%, respectively, as of June 30. While current rates of delinquency remain well below those observed in the aftermath of the Global Financial Crisis, both figures now exceed pre-pandemic levels and may be poised to continue rising.

There is also another challenge with which millions of citizens must now grapple — the resumption of student loan payments, which were reinstated earlier this month. Given this new reality, the proportion of total interest payments relative to household income will almost certainly increase, which may lead some consumers to rely more heavily on credit cards to maintain current spending levels. This type of waning consumer strength would likely have significant ramifications for securities markets and the broader economy, and Marquette will continue to monitor indicators related to these dynamics as we head into the fall.

Print PDF > Feeling the Squeeze

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Chad Sheaffer, CFA, CAIA
Senior Research Analyst

Get to Know Chad

Related Content

02.22.2024

2 vs. 2000

A key metric that many investors use to measure the size of a company is market capitalization, which represents the…

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF. General description: Four-line chart plotting Treasury yield and spread since 1976. Chart subtitle: The current inversion of the Treasury curve has been aberrational in length and magnitude relative to history. Chart source: Bloomberg, Federal Reserve Bank of St. Louis as of February 14, 2024 Chart visual description: Left Y-axis labeled “Yield" and ranges from 0% to 18% in 2% increments. Right Y-axis labeled “Spread” and ranges from -300bps to 400bps in 100bps increments. X-axis labeled in YYYY format, from 1976 to 2023. 10-Year Treasury Yield plotted in dark teal line. 2-Year Treasury Yield plotted in light teal line. 2s10s Spread plotted in tan line. Inversion Demarcation (corresponding to right Y-axis) is plotted in light tan dashed line. Chart data description: Please contact us for the full dataset. End chart description. See disclosures at end of document.

02.15.2024

If the Treasury Curve Could Talk

While most of Marquette’s research is written in the third person, this edition of our Chart of the Week series…

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF. General description: Line chart showing down rounds in venture capital-backed companies. Chart subtitle: Over the last two years, there has been a noticeable increase in down rounds for venture-backed companies. Chart source: Source: Cooley GO as of September 30, 2023 Chart visual description: Y-axis labeled “Down Rounds as a % of Total” and ranges from 0% to 30%. X-axis labeled in quarterly increments, from 1Q21 through 3Q23. Down Rounds (% of Total) plotted in dark orange; average plotted in dotted light orange. Chart data description: Average at 9.6%. 1Q21 at 5.7%. 2Q21 at 2.7%. 3Q21 at 2.3%. 4Q21 at 0.4% (trough for period shown). 1Q22 at 3.0%. 2Q22 at 4.1%. 3Q22 at 10.2%. 4Q22 at 14.1%. 1Q23 at 15.5%. 2Q23 at 21.2%. 3Q23 at 26.8%. End chart description. See disclosures at end of document.

02.06.2024

Another (Down) Round

Venture-backed companies tend to be nascent and typically deploy investment capital in an effort to drive revenue expansion, often to…

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF. General description: Combination column and line chart showing index weight and performance for China and India. Chart subtitle: There has been a significant divergence in performance between Chinese and Indian equities over the last few years. Chart source: Bloomberg, eVestment, MSCI as of December 31, 2023. Chart visual description: Left Y-axis labeled “Cumulative Return” and ranges from -25% to +150%. Right Y-axis labeled “MSCI Emerging Markets Weight” and ranges from 0% to 50%. X-axis labeled M/D/YY in six-month increments, from 12/31/15 to 12/31/23. EM Index weights are stacked columns, with China in light blue and India in light green, at the 6/30 increment for each year. China return is plotted in dark blue line and India return in dark green. Chart data description: Please contact us for the full dataset. End chart description. See disclosures at end of document.

02.01.2024

A Tale of Two Emerging Markets

While Chinese equities have largely languished in recent time amid robust performance of Indian stocks, it is important to note…

01.26.2024

2024 Market Preview Video

This video is a recording of a live webinar held January 25 by Marquette’s research team analyzing 2023 across the…

01.25.2024

2024 Market Preview: A 40 Degree Day

A former colleague once described his brother-in-law to me as a “40 degree day.” The puzzled look on my face…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >