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Credit card defaults are up 50 percent from a year ago.

All Is Not Well for Lower Income Groups

Please note US Credit Card Defaults Surge to Highest Level Since 2008

Defaults on US credit card loans have hit the highest level since the wake of the 2008 financial crisis, in a sign that lower-income consumers’ financial health is waning after years of high inflation. Credit card lenders wrote-off $46bn in seriously delinquent loan balances in the first nine months of 2024, up 50 per cent from the same period in the year prior and the highest level in 14 years, according to industry data collated by BankRegData.

Write-offs, which occur when lenders decide it is unlikely a borrower will make good on their debts, are a closely watched measure of significant loan distress. “High-income households are fine, but the bottom third of US consumers are tapped out,” said Mark Zandi, the head of Moody’s Analytics. “Their savings rate right now is zero.”

The sharp rise in defaults is a sign of how consumers’ personal finances are becoming increasingly stretched after years of high inflation, and as the Federal Reserve has left borrowing costs at elevated levels. Banks have yet to report their fourth-quarter numbers but the early signs are that more consumers are falling significantly behind on what they owe. Capital One, the US’s third-largest credit card lender, after JPMorgan Chase and Citigroup, recently said that as of November its annualized credit card write-off rate, which is the percentage of its overall loans that are marked as unrecoverable, hit 6.1 per cent, up from 5.2 per cent a year ago. “Consumer spending power has been diminished,” said Odysseas Papadimitriou, head of consumer credit research firm WalletHub.

Ivory Tower Economy vs the Real World

Surging defaults provide another hard reason for why Trump won the election.

Ivory tower economists keep saying everything looks great.

But polls kept showing huge concerns over the economy. The economic polls, not the economists were right.

Continued Unemployment Claims Make a New High for the Year

As defaults soar, please note Continued Unemployment Claims Make a New High for the Year

From August of 2023 until April of 2024, it was easy to find a job if you lost one. That has not been the case starting May of 2024.

Recession Indicator

I created a recession indicator using a moving averages of 15-weeks or longer unemployed.

For discussion, please see Two Recession Indicators, What Do They Say Now?

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