Consumer debt has been on the rise recently – in the third quarter, credit card balances rose 15%, according to the New York Federal Reserve. This is the largest increase in more than two decades.
Consumer debt began to rise during the pandemic because people felt comfortable borrowing money, thanks in large part to the strength of the labor market.
But later, inflation picked up again, said Kathy Bostjancic, chief economist at Nationwide.
“And that makes people, especially even for non-discretionary items, lean more and use more credit to be able to make those purchases,” Bostjancic said.
Consumer debt levels haven’t yet reached the point where they’re a major concern as people’s wages have gone up, said Wells Fargo economist Shannon Seery.
“When we put it in the context of income, these debt burdens are still quite manageable from a macro perspective,” Seery said.
But Seery said consumer debt is growing faster in some parts of the economy.
“So the balances of borrowers under 30, and in your lowest income quintile for example, are now above pre-pandemic levels, in terms of outstanding credit card debt,” a she declared.
Seery said lower-income groups were starting to see their wage gains slow. This means that their debt will become more of a burden.
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