U.S. Consumer Behavior and Consumer Credit Trends in 2024

This report examines the current trends in U.S. consumer behavior and consumer credit, focusing on the implications for the economy in 2024. By analyzing labor market conditions, household financial health, and consumer sentiment, we aim to provide sophisticated investors with insights into potential economic outcomes and inform strategic decision-making.

Consumer Behavior Trends

Shifts in Spending Patterns

Recent data indicate that U.S. consumer behavior is undergoing significant changes. The average propensity to consume remains elevated compared to pre-pandemic levels, driven by the gradual spending of accumulated excess savings and increased net assets. However, consumer confidence has weakened, reflecting concerns about future economic conditions and inflation.

Consumer Sentiment Indicators

The Michigan Consumer Sentiment Index (CSI) and the Conference Board Consumer Confidence Index (CCI) are key measures of consumer confidence. Both indices have shown declines recently, with the CCI dropping to its lowest level since July 2022. Consumers are particularly pessimistic about short-term business conditions, labor market prospects, and their financial situation in the coming months.

Impact of Wealth and Savings

Despite the decline in consumer confidence, the average propensity to consume remains high. This trend is supported by a lower savings rate, which has fallen below pre-pandemic levels. Households are continuing to spend their accumulated savings from the pandemic period, maintaining consumption levels. Additionally, rising net assets, driven by gains in stock and real estate values, are contributing to higher spending.

Consumer Credit Trends

Expansion of Consumer Debt

The growth of consumer debt has been a notable trend in recent years. During the pandemic, households increased their leverage due to significant fiscal stimulus and ultra-loose monetary policy. As a result, consumer credit, including credit card debt and auto loans, has expanded rapidly.

Credit Card and Auto Loan Delinquencies

Credit card debt has grown significantly, reaching $1.129 trillion by Q4 2023, with delinquency rates exceeding pre-pandemic levels. The 30-day and 90-day delinquency rates for credit cards have risen to 8.52% and 9.74%, respectively. Similarly, auto loan delinquencies have increased, with the 30-day delinquency rate rising to 7.69%. Low-income and younger consumers are experiencing higher rates of delinquency, indicating financial stress in these demographics.

Mortgage Debt Stability

Mortgage debt, the largest component of household liabilities, continues to grow but at a slower pace. Many households secured low-rate mortgages during the pandemic, which has kept their debt servicing costs low despite rising interest rates. As a result, mortgage debt remains manageable for most households, contributing to overall financial stability.

Factors Influencing Consumer Credit

The expansion of consumer credit is influenced by several factors:

（1）Interest Rates: The Federal Reserve's rate hikes have increased borrowing costs, but many households had already locked in low mortgage rates, reducing the immediate impact on their finances.

（2）Income and Employment: Wage growth has slowed, but employment remains relatively strong, providing some support for consumer spending and creditworthiness.

（3）Asset Prices: Increases in stock and real estate values have boosted household net worth, encouraging higher spending and borrowing.
Historical Analysis: Labor Market Weakness and Asset Price Growth

Analyzing historical periods when the U.S. labor market weakened while asset prices, particularly housing prices, increased provides valuable insights into consumer spending resilience. The periods of 1998Q3-1999Q2, 2000Q4-2001Q4, 2004Q4-2005Q2, 2013Q1-2013Q4, and 2015Q1-2016Q2 illustrate various outcomes:

（1）1998Q3-1999Q2: Consumer spending growth remained robust despite labor market weakness, supported by rising asset prices.

（2）2000Q4-2001Q4: The U.S. experienced a hard landing with a recession, leading to a decline in consumer spending growth.

（3）2004Q4-2005Q2: Consumer spending growth remained strong, driven by rising housing prices and favorable financial conditions.

（4）2013Q1-2013Q4: Despite a weak labor market, consumer spending increased, bolstered by asset price gains.

（5）2015Q1-2016Q2: Consumer spending growth slowed but remained positive, reflecting underlying economic resilience.

These historical periods demonstrate that consumer spending can remain resilient even when the labor market weakens, provided that asset prices continue to rise, creating a wealth effect that supports consumption.

Moderate Growth Expected

The outlook for U.S. consumer behavior and consumer credit in 2024 suggests moderate but resilient growth. While there are risks associated with rising delinquencies and higher borrowing costs, the overall financial health of households remains robust, supported by strong net assets and ongoing spending of accumulated savings. Historical analysis shows that consumer spending can be resilient in the face of labor market weakness, provided that asset prices continue to rise.