Borrowers, especially the young, struggle with credit card debt in potentially bad sign for economy

Consumers are increasingly struggling to pay their credit card bills, raising concerns about severe delinquencies spiraling and sapping consumer spending. The share of credit card debt that’s more than 90 days overdue rose to 10.7% during the first quarter, a 14-year high, according to the Federal Reserve Bank of New York’s report on first-quarter household debt. A year ago severe delinquencies totaled only 8.2% of credit card debt. The first-quarter jump in severe delinquencies was the biggest since 2011. Meanwhile, total credit card debt rose to $1.12 trillion from just under $1 trillion a year ago. Those in their 20s and 30s are having the most difficulty paying their credit card bills. Those age groups typically have a mix of less earning power and lower savings. The Federal Reserve hiked its key interest rate to a 23-year high to combat four-decade-high inflation, which peaked in June 2022 at 9.1%. Those rate increases made borrowing more expensive on mortgages, auto loans, and credit cards. Consumer spending fuels economic growth, so trouble paying credit card bills is a worrisome signal. The direction of the labor market could determine whether debt stress becomes a bigger concern. Job and wage growth helped counter the hit to consumers’ wallets from rising inflation, but a continued slowdown or reversal there could tip the scales. “While these indicators do not necessarily predict a recession, especially with a robust labor market, a weakening in employment conditions could exacerbate household financial instability,” said Gregory Daco, EY chief economist. “The combination of subdued job growth, sluggish income progression, and diminished savings could lead to increased delinquencies and a potential retrenchment in consumer spending.” Still, retail spending unexpectedly stalled in April is a sign of consumer fatigue and worry. Walmart, the nation’s largest retailer, has said its customers are spending more on necessities and less on discretionary goods like home furnishings and electronics. Coffee chain Starbucks lowered its sales expectations for the year as people visit its cafes less often, and McDonald’s is offering more deals as people cut back on fast food and eating out. This article was provided by The Associated Press.