Credit card debt climbed to a record high in the third quarter of 2023, surging nearly 5% from the previous quarter and leaving a growing share of borrowers late on payments, a Federal Reserve report this week showed.
The report demonstrates the dwindling savings held by some consumers who amassed a financial buffer during the pandemic but later burned through it under the strain of rapid price increases, economists told ABC News.
The financial hardship, they added, has fallen primarily on low-income people squeezed between elevated prices and high interest rates who borrowed money to cover the rising expenses.
The economists differed, however, on the economic implications of the credit card debt. Some treated the data as evidence of an alarming trend that foretells weakness for U.S. consumers and a potential economic slowdown. Others said the debt doesn’t threaten the wider economy.
Here’s what to know about what the record credit card debt means for the economy:
Consumers are spending the savings built up during the pandemic
The Fed report marks the latest indication that some consumers have exhausted savings built up during the pandemic as a means of weathering high prices, economists said.
The average net worth of U.S. households skyrocketed nearly 40% between 2019 and 2022, a rate more than double a previous record high in the early 2000s, the Federal Reserve found last year.
U.S. credit card debt briefly fell during the pandemic but has climbed since 2022
Federal Reserve Bank of New York Consumer Credit Panel
The surge coincided with a rapid rise in prices, however, as inflation reached a peak last summer. In turn, the average savings rate for U.S. households has plummeted since 2022, the Fed said last month.
“We had all-time high household savings and inflation strikes and people have to do something about that,” John Sedunov, a finance professor at Villanova University’s School of Business, told ABC News.
“People have to deal with this somehow,” he added. “After blowing through savings to buy essentials, they do what’s next: Find sources to borrow.”
U.S. consumers, who account for nearly three-quarters of U.S. economic activity, drove breakneck economic growth in recent months, Mary Hansen, an economics professor at American University, told ABC News. The data released this week suggests the consumer spending was fueled in part by debt, she noted.
“Consumer spending, which we all know is the base of GDP, is really being held up by credit card debt and maybe it’s not sustainable,” Hansen said.
In this undated file photo, a woman is shown shopping online.
STOCK PHOTO/Getty Images, FILE
High prices are squeezing low-income people
The jump in credit card debt also indicates that elevated inflation has imposed acute hardship on some low-income people, economists said.
Overall delinquency rates on a range of consumer loans — including credit card, auto and student borrowing — ticked up to 3% over a three-month period ending in September, the Fed report showed.
“The increase in credit card debt and delinquencies reflects in part the increased financial stress on lower-income households, who have been hit hard by the higher cost of living,” Mark Zandi, chief economist at Moody’s Analytics, told ABC News.
Low-income people in financial distress have responded to high prices in part by taking on additional credit card debt. But such loans come with high interest rates that can exacerbate an individual’s budget problems, Hansen said.
Average credit card interest rates stand at nearly 21%, Bankrate found last week. That figure is up from roughly 16% at the outset of 2022.
“It puts people on the low end of the income distribution in a real bind,” Hansen said.
While the difficulty faced by low-income people hold significant implications for their financial outlook, such hardship bears little on the wider economy since low-income people account for a relatively small share of overall consumer spending, Christian Weller, a public policy professor at the University of Massachusetts at Boston, told ABC News.
In contrast with Hansen, Weller said the rise in credit card debt and delinquency falls short of posing a threat to the economy.
“We’ve had really gangbusters consumption,” Weller said. “A lot of this was driven by consumption among upper and middle income households.”
He added, “Those people still have more cash on hand.”
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
