Consumer finances 2023 year in review

consumer finances 2023

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Credit Sesame’s consumer finances 2023 year in review list ten factors influencing overall financial health in 2023.

2023 had more plot twists than a Knives Out movie. Some problems were resolved, some got worse, and others sprang up unexpectedly. Many of the past year’s developments affected consumer finances, creating an odd mix of good and bad news.

This kind of mixed environment calls for consumers to be aware and agile. They need to be mindful of how economic developments affect them and agile enough to adjust their financial habits accordingly. Ten key events affected consumer bank accounts, credit cards, mortgages, and overall financial health in 2023.

1. Fed adds more rate hikes then signals policy shift

The Federal Reserve raised rates four times by the end of July 2023. That continued a campaign of rate hikes that began in 2022. The past two years saw 11 rate hikes totaling 5.25%. This was a significant factor in driving borrowing rates higher. For example, the average rate on credit cards jumped by over 6% since the end of 2021 to 22.77%. After July, though, the Fed rate hikes stopped. The Fed closed the year by forecasting it would cut rates by about three-quarters of a point over the next year.

2. Inflation eases but doesn’t go away

Inflation peaked in mid-2022 at 8.9%. This pushed prices higher, prompted the Fed’s rate hikes, and drove loan rates, particularly mortgage rates. Things began to ease in 2023. By the end of November, the 12-month inflation rate was down to 3.1%. That’s a big improvement, but still well above the Fed’s long-range target of 2%.

3. Banks suffer biggest year of failures ever

A series of bank failures early in 2023 shook confidence in the US financial system. Through November, there had been only five bank failures in 2023. That’s a far cry from the peak year of 157 failures in the wake of the 2008 financial crisis. However, the dollar value of 2023 failures was over $548 billion, the highest total ever.

4. US economy proves resilient

With the economy under the strains of inflation and rising interest rates, many experts predicted a recession in 2023. The first half of the year saw the economy hang in there with two quarters of sluggish but still positive growth. Then came the surprise. GDP growth bounced back to an annual real growth rate of 4.9% in the third quarter, making it the best quarter since 2021.

5. Employment remains a bright spot

Perhaps the best thing consumers had going for them in 2023 was a strong job market. Through November, total US employment had risen for 35 consecutive months. At 3.7%, the unemployment rate remained near its 50-year low. With more job openings than job seekers, workers enjoyed an unusual amount of bargaining power.

6. Home prices rise despite slowing demand

For much of the year, rising mortgage rates severely dampened home-buying demand. Despite that, home prices continued to rise. The reason was a relative shortage of properties for sale. Those higher mortgage rates made existing homeowners reluctant to give up their low-rate mortgages by selling.

7. The Magnificent Seven dominate the stock market

After a poor 2022 for investors, the stock market appeared much improved in 2023. By December, the S&P 500 was up an impressive 21% for the year. However, upon closer examination, it was found that success was attributed mainly to just seven stocks. Overall, a group of seven leading tech stocks had gained 70% in 2023. Take out the performance of those seven stocks, and the remainder of the S&P 500 was up just 6%.

8. Credit card debt reaches $1 trillion

Overall consumer debt continued to rise to record levels in 2023. The total owed on credit cards reached the $1 trillion mark for the first time during the second quarter. With interest rates elevated, consumers face the highest total interest charges ever.

9. Consumer debt payment delinquency rates rise

As Americans took on more debt, they increasingly struggled to keep up with their payments. Delinquency rates rose for payments on auto loans, credit cards, mortgages and personal loans. The problem was most acute among people with poor credit scores. About 1 in 5 subprime credit card accounts were over 90 days overdue for payment.

10. Student loan payments resume

For the first time since the onset of the COVID-19 pandemic in 2020, payments on government student loans resumed in October 2023. Student loan advocates warned that it would cause a strain on the budgets and credit scores of millions of borrowers. More broadly, economists cautioned that it would drag on consumer spending.

Economics is often a mix of good and bad news, but in 2023, the US economy saw extreme opposites. Resilient economic growth, a strong stock market, and low unemployment contrasted with rising debt levels, late payments, and bank failures. For all the year’s good news, the bad means consumers cannot afford to become complacent.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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