A recent headline from a prominent financial news source reads: “US Consumer Debt Delinquency Hits Highest in Almost Five Years.” The author notes that the recent Federal Reserve data suggests Americans are increasingly struggling financially, and the piece cites that US total household debt, which includes credit cards, auto loans, mortgages, and other debts, hit $18 trillion in 2024.
At ITR Economics, our analysis suggests that the current debt levels are not a sign of serious trouble just yet.
Significant stimulus in the form of lowered interest rates, mortgage and rent forbearance programs, and economic impact payments entered the economy during the COVID-19 pandemic. The resulting surge in liquidity corresponded with a decline in monthly delinquency rates into early 2021. As stimulus money dissipated and interest rates rose, delinquency rates were bound to face some level of post-COVID correction. We can see in the chart below that the recent rise in delinquency rates is at least partly attributable to a renormalization of delinquency rates. At 2.7% as of late 2024, delinquency rates are now just a hair above the pre-COVID levels.
If there is a cause for concern regarding consumer debt, it would be the fact that the delinquency rate for auto loans, at 4.8% in December 2024, is above its historic 10-year average.
The rise in delinquency rates could mean that consumers are becoming stretched too thin by their auto debt. According to Cox Automotive’s Kelley Blue Book, average transaction prices for new vehicles were at $48,641 in January 2025 and have been trending near record highs since December 2022. High prices and the increasing burden of auto loan debt could negatively impact spending activity and contribute to ITR’s expectation that forthcoming macroeconomic rise may be sluggish and choppy at first.
If we take a closer look at what current debt levels mean in terms of overall burden on the US household, the picture is less grim. US Household Debt as a percentage of disposable personal income (after-tax income) averaged 11.2% in the 12 months through September 2024, equaling the historic 10-year average. The actual burden of the debt service, in terms of quarterly payments as a percentage of quarterly disposable income, is half of that, at 5.5%.
Other considerations for why we think the current consumer debt load is not cause for panic include:
After declining for much of 2022–23, US Total Inflation-Adjusted Savings Balances are now in an accelerating growth trend.
Serious delinquencies for mortgages are low. The percentage of mortgage loans that were 90-plus days delinquent was just 0.7% as of the fourth quarter of 2024.
Although we have seen some softening in the labor market, it remains relatively tight. Demographic trends support the likelihood that the labor market will be tight for years to come. US Total Nonfarm Job Openings have declined but are still above the 10-year average. Meanwhile, full-time employment for degree holders is rising.
Do not panic over recent headlines on rising debt levels. Instead, take time to understand your market’s exposure to consumer credit risks. Some sectors, such as the automotive industry, and certain consumer groups, such as those with very low income or those impacted by recent US government layoffs, may be relatively worse off.
While we do not see consumer debt levels as a cause for serious concern, there are other risks ahead that could contribute to margin pressure. ITR Economics is expecting further inflation ahead, and it may be difficult to pass those price increases along to consumers. The cumulative impact of recent inflationary periods will likely contribute to heightened price-sensitivity for part of 2025. If you need help analyzing your business’s exposure to inflation and consumer risks, reach out to us.