While consumer debt is high, consumers still have room to run, explaining some of the confusion about why buying of some things, like choice beef, continues, according to an economic bulletin from the Kansas City Federal Reserve Bank.
Although the share of credit card debt transitioning into delinquency has risen, it remains below levels seen during the Global Financial Crisis, the Bank said. Moreover, debt-to-income measures remain historically low, suggesting consumers in aggregate may have more room to run up debt before experiencing further financial stress.
TOTAL CONSUMER DEBT BREAKING RECORDS
The New York Fed recently reported that consumer debt reached $17.7 trillion in the first quarter of this year, the report said. However, this number does not account for the role inflation may play in driving up consumer debt, the Bank said. In real terms, consumer debt reached $14.5 trillion in 2024, $0.9 trillion higher than its pre-pandemic level and $0.3 trillion higher than its prior record, set in 2009 during the Global Financial Crisis.
Consumer debt relative to income remain historically low, suggesting consumers can take on additional debt, the economic bulletin said. The debt-to-income ratio exceeded 1.0 during the 2007–09 global financial crisis, indicating consumers in aggregate had borrowed more than their available income.
Consumers paid down their debt in the following years, but in 2013, consumer debt in real terms began to increase again, the Bank said. In contrast, consumers’ debt-to-income ratio continued to decline over the same period and has remained relatively flat at around 0.75 in recent quarters.
CREDIT CARD DEBT A MAJOR FACTOR
One of the main contributors to the rise in consumer debt over the past two years has been credit card debt, the Bank report said. Credit card debt increased by almost $0.2 trillion since 2021, and the share of credit card debt transitioning into delinquency also rose, from about 4% to almost 9%.
The share of credit card debt transitioning into delinquency among subprime borrowers (those with an Equifax Credit Score below 620) also increased from 38% in 2021 to 63% in 2023, the Bank said. These transition rates remain below prior peaks during the GFC, but the rapid increase over the past two years indicates some borrowers likely are experiencing financial stress.
Borrowers who may be carrying credit card debt from month to month are most likely to experience stress, as the average interest rate on credit cards increased from 15% in 2021 to 21% in 2023, the report said.
Research has shown that at the individual level, most financial distress events are primarily accounted for by a small proportion of consumers in persistent trouble.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $184.00 per cwt to $194.17, compared with last week’s range of $184.00 to $189.52 per cwt. FOB dressed steers, and heifers went for $289.78 per cwt to $295.90, compared with $289.94 to $295.35.
The USDA choice cutout Tuesday was up $0.32 per cwt at $313.02 while select was up $1.52 at $300.87. The choice/select spread narrowed to $12.15 from $13.35 with 77 loads of fabricated product and 22 loads of trimmings and grinds sold into the spot market.
The weighted average USDA listed wholesale price for fresh 90% lean beef was $350.03 per cwt, and 50% beef was $68.03.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.38 to $1.50 a bushel over the Jul corn contract, which settled at $4.58 a bushel, down $0.02 1/2.
The CME Feeder Cattle Index for the seven days ended Friday was $246.87 per cwt, up $3.83. This compares with Monday’s May contract settlement of $246.70, down $0.02.