US Indicators Remain Strong... Credit Card Defaults Reach Highest Level in 14 Years

As U.S. economic indicators continue to show stronger-than-expected resilience, credit card loan defaults have reached their highest level in 14 years. This signals a rapid deterioration in financial health, particularly among low-income groups, following the pandemic era of high inflation and high interest rates.

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On the 29th (local time), the Financial Times (FT) reported, citing data analytics firm BankRegData, that the U.S. credit card industry has written off approximately $46 billion in bad delinquent loan balances from the beginning of this year through September. This represents a 50% increase compared to the same period last year and is the highest level since 2010.

Typically, such write-offs occur when card users are deemed unlikely to repay their debts, making this a key indicator for measuring loan defaults. The sustained high inflation and the Federal Reserve's (Fed) high interest rates in recent years have significantly worsened the financial capacity of U.S. consumers.

This contrasts with the robust U.S. economic indicators, which have recorded a 3% growth rate for two consecutive quarters, supported by stronger-than-expected retail sales. Mark Zandi, Chief Analyst at Moody's, expressed concern, saying, "High-income households are fine," but "the bottom 33% income bracket of U.S. consumers has reached financial limits. Their savings rate is 0%."

FT noted that although major banks have yet to release their fourth-quarter earnings, early signs indicate that an increasing number of consumers are falling behind on their loans. The outstanding balance of U.S. consumer credit card debt surpassed $1 trillion for the first time by mid-2023. Moreover, delinquency rates have surged, standing about 1 percentage point higher than the pre-pandemic annual average.

According to Capital One, the third-largest credit card issuer in the U.S., the proportion of credit card loans deemed unrecoverable reached 6.1% as of last November, significantly higher than 5.2% a year earlier. Odysseas Papadimitriou, head of consumer credit research at WalletHub, pointed out, "Consumers' purchasing power is declining," and warned, "High delinquency rates foreshadow greater pain ahead."

In particular, the high interest rates have played a significant role in depleting consumers' available funds in their accounts. The Wall Street Journal (WSJ) previously highlighted that those who took out low-interest loans or took advantage of relaxed lending conditions during the pandemic to purchase homes are now facing the fallout from these loans. Despite the Fed entering a monetary easing cycle since September, the U.S. benchmark interest rate remains at a high level.

Additionally, the incoming U.S. President Donald Trump, who will take office in January next year, is also considered a risk factor. Papadimitriou noted that the broad high tariffs promised by President-elect Trump could lead to a rebound in inflation and high interest rates, adding, "This will pose two problems for consumers in 2025."

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