Source: Financial News Agency Author: Liu Rui

Although US economic data seems to indicate that the growth rate of the US economy is rebounding strongly, and Wall Street is worrying less and less about the US recession, the latest data shows that the consumer default rate rose sharply in the first quarter of 2024. This may be a dark ray buried under the image of a prosperous US economy.

Chicago Federal Reserve Bank President Austin Goolsbee (Austan Goolsbee) has emphasized that the consumer default rate is currently one of the most worrying economic indicators.

“If consumer loan delinquency rates start to rise, this is usually a leading indicator that the situation is getting worse.” Goulsby said.

The US debt default rate is worrying

The latest data released by the Federal Reserve confirmed his concerns. According to the data, the overall default rate in the US has increased. “As of the end of March, 3.2% of outstanding debt was in some kind of arrears,” which marks a significant rise in consumer financial difficulties.

The data shows that default rates have risen sharply across all debt categories: around 8.9% of credit card defaults and 7.9% of auto loan arrears each year.

Joelle Scally (Joelle Scally), regional economics director at the Federal Reserve Bank of New York's Department of Family and Public Policy Research, said:

“The rate of serious defaults on credit cards and car loans continued to rise in the first quarter of 2024 for all age groups... More and more borrowers are delinquent on credit card payments, indicating the worsening financial woes of some families.”

Multiple factors work together

Despite these worrying trends, the Federal Reserve has yet to determine a single reason for the rise in the delinquency rate. In fact, there may be several factors behind this.

The first is that during the pandemic, Americans' savings and expenses have increased. Now, with the impact of the pandemic over, with savings not being maintained at a high level, Americans may continue to maintain their high spending habits during the previous pandemic, leading to an increase in their dependence on credit cards and other loans.

Second, in recent years, there has been an increase in loans issued by banks to borrowers with lower credit scores, which may also lead to an increase in delinquency rates.

As the situation evolves, policymakers and financial institutions must closely monitor these indicators to address potential economic impacts. Goulsby and others believe that rising default rates may indicate more significant economic problems, so careful and active measures are necessary to prevent further deterioration.

edit/lambor