Credit Sesame’s personal finance weekly news roundup February 18, 2023. Stories, news, politics and events impacting the personal finance sector during the last week.
- Consumer debt and delinquencies continue to rise
- IMF head warns of harm if US doesn’t raise debt ceiling
- Retail sales remained strong in January
- IRS releases guidance on inflation relief payments
- Inflation bounced back in January
- Discover has been seeing rising credit card delinquencies
- Mortgage applications are way down from a year earlier
- New home construction continues to decline
1. Consumer debt and delinquencies continue to rise
The New York Fed’s latest Household Debt and Credit Report found that Americans are continuing to take on more debt, and having a harder time handling it. Total household debt reached a new high of $16.90 trillion in the fourth quarter of 2022. Total amounts owed were up across all categories of household debt, but credit card debt grew at an especially fast pace. Credit card debt is now at a record high of $986 billion. The rate at which debt is becoming delinquent also increased across all categories during the past year. See release at NewYorkFed.org.
2. IMF head warns of harm if US doesn’t raise debt ceiling
Kristalina Georgieva, Managing Director of the International Monetary Fund, warned that consumers and the global economy would be the victims if the US defaults on its debt obligations. Default is a possible outcome of recent political wrangling over the debt ceiling. Georgieva said that a default would hurt consumers by sending interest rates soaring. The resulting spending slowdown would be a drag on global economic growth. See article at Bloomberg.com.
3. Retail sales remained strong in January
Consumer spending continued to rise as the new year began. The Mastercard SpendingPulse survey found that non-automotive retail sales were up by 8.8% this January compared with one year earlier. This means that consumer spending more than kept pace with inflation, which was 6.4% over the past 12 months. E-commerce and in-person sales had similar growth rates, with e-commerce up by 8.4% over the past 12 months and in-person sales up by 8.9%. Restaurant receipts showed particularly strong growth, with a 24.2% rise over the past year. At the other end of the spectrum, furniture and furnishing sales reflected the slowdown in home sales with a 1.2% decline over the past year. See press release at Mastercard.com.
4. IRS releases guidance on inflation relief payments
The Internal Revenue Service (IRS) issued guidance that had been delaying the ability of taxpayers in many states to file their 2022 returns. The issue is the tax treatment of special inflation relief payments that were issued by 21 state governments. The IRS ruled that in most cases those payments need not be included in taxable income. However, taxpayers should check the IRS website for details. See statement at IRS.gov.
5. Inflation bounced back in January
The Bureau of Labor Statistics reported that the Consumer Price Index rose by 0.5% in January. This follows much milder 0.2% and 0.1% increases in November and December, and would represent an annual rate of inflation of nearly 6.2%. This is a setback after inflation had become fairly mild during the second half of last year. January’s inflation was especially impactful because it was led by non-discretionary categories such as shelter, energy and food. See full report at BLS.gov.
6. Discover has been seeing rising credit card delinquencies
Discover announced that it has seen credit card delinquency rates rise every month since last May. Delinquency rates are the percentage of credit card customers who are at least 30 days late with their payments. Significantly, Discover’s delinquency rate is now higher than it was just before the pandemic began. Consumers generally used government pandemic assistance to pay down debt, but now the beneficial impact of that assistance seems to have been depleted. See article at PYMNTS.com.
7. Mortgage applications are way down from a year earlier
Through the middle of February, mortgage application volumes for both purchases and refinancing were showing the strain of higher interest rates. In particular, the drop-off in volume showed that few homeowners were finding worthwhile refinancing opportunities in today’s higher-rate environment. Refinancing activity was down by 76% from a year earlier. Meanwhile, purchase mortgage applications were off by 43% over the same period. See details at MBA.org.
8. New home construction continues to decline
Home builders are responding to reduced demand from home buyers by slowing the pace of new construction. New permits for construction of single-family homes dropped by 4.3% last month after adjustment for normal seasonal changes. Single-family housing starts were at an annual pace of 841,000 units in January, a 27.3% decline from a year earlier. Single family homes represent most home building activity, and thus are an important indicator of the market. There is some hope that a recent dip in mortgage rates will revive demand, but the fact remains that home loan rates are much higher than they were a year ago. See article at Reuters.com.