U.S. consumer debt delinquency is worsening. According to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit released on Wednesday, total household debt rose by $197 billion in Q3, reaching $18.59 trillion.
The share of debt delinquent by 30+ days climbed to 4.5% from July to September, the highest level since Q1 2020. Notably, student loan delinquency surged to a record 14.4%.
The rising default rates reflect mounting financial pressure on American households, particularly younger demographics, with severe delinquencies most pronounced among consumers in their 20s and 30s.
This trend underscores the impact of high interest rates, a weakening job market, and persistent inflation on U.S. households. Major corporations like Starbucks, Target, and Amazon have recently announced layoffs, while consumer confidence indicators from the University of Michigan and The Conference Board have also deteriorated in recent months.
**Mortgage Market Shows Resilience**
The report also highlighted some positive signals. Mortgages, the largest component of consumer debt, maintained relatively low delinquency rates.
Donghoon Lee, Economic Research Advisor at the New York Fed, stated:
"Household debt balances grew at a moderate pace, and delinquency rates are stabilizing. The relatively low mortgage delinquency reflects the housing market’s resilience, supported by strong home equity and strict underwriting standards."
Last week, the Federal Reserve cut interest rates by 25 basis points for the second consecutive month to support the slowing labor market. Fed Chair Jerome Powell said he is "closely monitoring" credit conditions after recent reports of significant losses by subprime auto lenders but added that no "broader credit issues" have emerged yet.
**Younger Consumers Tighten Spending**
As previously noted, Goldman Sachs consumer goods expert Scott Feiler observed a shift in discussions about consumer health. While companies initially blamed weak spending on firm-specific factors or low-income groups, more businesses now report broader slowdowns, particularly among middle-income consumers aged 25–35.
Chipotle Mexican Grill noted:
"The gap has widened, with lower- to middle-income customers cutting back on visits due to job insecurity, student loan repayments, and slowing real wage growth."
Kraft Heinz CEO Carlos Abrams-Rivera remarked during an earnings call:
"We’re facing one of the worst consumer confidence levels in decades."
The company slashed its full-year sales guidance, now expecting a 3%–3.5% decline, significantly worse than prior forecasts. Management attributed the sustained weakness to inflation-driven price hikes and reduced food stamp benefits.
Even traditionally defensive sectors are not immune. Snack giant Mondelez International CEO Dirk Van De Put warned:
"A government shutdown won’t help consumer confidence." Hershey also offered Halloween discounts as U.S. shoppers tightened budgets amid economic uncertainty and soaring cocoa prices.
