Credit Risk

Looking Back on 2023 and Focusing on Forward for 2024

Looking Back on 2023 and Focusing on Forward for 2024

December 12, 2023 | Olivia Voltaggio

During the final Market Pulse webinar of 2023, we took a look at the past year’s economic and consumer landscape and then presented an economic and consumer credit outlook for 2024, with the goal of helping you ensure you’re well positioned to focus on forward — even during uncertain times.

We welcomed Amy Crews Cutts, who presented a macroeconomic update to set the stage for the discussion. Amy is president and chief economist at AC Cutts & Associates.

Joining us from Equifax was Jesse Hardin, risk advisor, who shared the latest U.S. consumer credit insights; Tom Aliff, risk advisory leader; as well as Tom O’Neill, David Sojka, and Maria Urtubey, risk advisory team members.

The macro picture: hits, misses, and what comes next - from Economist Amy Crews Cutts

Economists initially anticipated a deceleration in consumer spending, yet the actual trajectory has defied these projections, displaying a resilience that has surpassed expectations. Moreover, predictions of an impending recession have been tempered, with analysts now foreseeing the possibility of such an economic downturn in the mid-2024 time frame, if it materializes at all. The economic landscape has thus far proven dynamic, deviating from the anticipated trends in both consumer behavior and the timing of a potential recession.

Inflation, which reached the fifth-highest rate since World War II, is now showing signs of moderation.1 Wages have been on the rise, surpassing inflation only recently. However, middle-income households have borne the brunt of these economic shifts. The housing market is experiencing a slowdown due to elevated interest rates, with both home sales and building activity per household approaching historic lows. While bankruptcy rates declined in 2020-21, a reversal in the trend has been observed since the latter half of 2022.1

The primary risk in the current economic outlook lies in fiscal policy, although the lingering potential for challenges in monetary policy remains.1 The Federal Reserve's current tightening measures are noted as the most aggressive in the modern, post-Volcker era. Additionally, the specter of a federal government shutdown continues to loom as a plausible concern in the unfolding economic landscape.

Consumer credit insights

Overall, the data points reflect evolving challenges in consumer finance, influenced by interest rates, inflation, and economic pressures.

The data, as of October 2023, reveal insightful trends in consumer finance. Mortgage originations, totaling $963B, are 43% below the same period in 2022. Subprime shares are rising, though they constitute only 4% of the first mortgage balance share. Auto originations have decreased by approximately 8.5%, with subprime share at its lowest in a decade (12.6%). Bank card credit limits increased by 9%, but subprime share dropped to 3%. Private label originations are at historic lows, with a 17% decrease in new accounts.

Non-mortgage debt is $4.72T, with 35% from auto loans, 32% from student loans, and 22% from credit cards. Non-revolving debt decreased to $3.61T, while revolving debt surpassed $1.104T. Delinquency rates are rising, especially in subprime auto and bank cards, indicating the impact of inflation and consumer stress on the economy. Bank card utilization increased, but private label and home equity lines decreased or remained flat. 

Regarding delinquency trends, inflation and consumer stress are significantly impacting the economy. Delinquency rates, particularly in bank cards and subprime auto loans, are rising, reaching levels not seen since the Great Recession. Auto delinquency rates reached their peak in 2023, with both balance and unit delinquency just below all-time highs. Bank card delinquency rates have surpassed pre-pandemic levels, with private label balances seeing a 17% increase. Revolving credit card balances have surged, showing a 14% year-over-year increase in October. Younger age groups, especially those aged 18 to 29, are experiencing faster-growing balances. The analysis extends to bank card utilization, revealing higher usage rates in the 18 to 29 age group — nearing 40% — and a return to pre-pandemic levels in the 30 to 39 age group. 

Finally, aggregate delinquency levels across all products indicate the highest delinquent balances among 18 to 29 year olds, with increases correlating with inflation in 2021. The overall picture underscores the evolving challenges in the financial landscape, paying particular attention to the impact on different age groups and credit products.

Panel discussion 

Below is an abbreviated version of the in-depth answers provided by our experts. Make sure you stay in touch to attend future Market Pulse webinars. 

What surprised you this year? What did you think would happen? How did things actually play out?

Our experts noted the surprising resilience of the consumer despite aggressive Fed interest rate hikes. The prolonged impact of pandemic relief payments on consumer spending exceeded expectations, and the absence of an anticipated recession and inflation was unexpected. The speakers noted the surprising continuation of origination in the face of high mortgage and auto rates, highlighting the resilience of consumers even in challenging economic conditions. 

The panel also discussed the impact of student loans on the economy, noting forgiveness expectations did not materialize as anticipated, while the economy's K-shaped recovery emphasized the disparities between the upper and lower segments of the population. Lastly, our experts highlighted accurate predictions of the interest rate environment by credit union groups heading into 2023 as a significant impact on businesses over the past year.

Are there any particular challenges that our webinar audience should think about as they plan for 2024?

  • Impact of student loans

The speakers discuss the anticipated impact of student loans on delinquency statistics, particularly in November and December, as borrowers may divert funds from spending to cover student loan payments. The uncertainty lies in the unknown number of forgiven loans and their balances.

  • Credit card delinquencies

Our panel members highlighted delinquency trends in credit cards, discussing the notable increase in the difference between balance and unit delinquencies. This divergence is attributed to higher credit balances and fewer new accounts being opened, emphasizing the importance of managing losses as credit limits increase.

  • Labor market and layoffs

The experts expressed concerns about potential layoffs in the labor market in 2024, particularly as there has been a slight uptick in larger layoff announcements by companies like Citi and Spotify. They emphasized the importance of monitoring how consumers, historically shielded by low unemployment rates, will manage debt loads in the face of potential layoffs.

  • AI developments

The expectation is that tangible impacts of AI will become more apparent in 2024, particularly in customer experience through chatbots and personalized decision-making in credit and marketing.

  • Challenges and opportunities in the auto market

Our panelists noted a focus on challenges in the auto market, such as potential drops in vehicle prices impacting loan amounts. On the positive side, the speakers remarked on opportunities that arose during the pandemic, where some lenders took a data-driven approach to identify areas for expansion despite industry cutbacks.

What are some of the most common questions that you are getting? And what is your response?

The impact on lenders is not uniform, and geographic location plays a pivotal role, leading to distinct challenges for national and local lenders. The dynamics of prime and subprime markets further contribute to the disparities in their current situations. Our experts noted the significant variations observed among lenders, with some grappling to sustain their businesses while others navigate relatively smoothly. These discrepancies stem from factors such as geographic location, customer demographics, and the lender's specific focus within the market.

Traditional credit score assessments, particularly in the middle spectrum, are proving inadequate, making it more challenging for lenders to differentiate between financially stable customers and those facing economic challenges. In industries like communications and energy, understanding the complete financial profile of a customer becomes paramount. Lenders are confronted with the challenge of moving beyond conventional payment hierarchies to proactively evaluate a customer's financial position for more informed decision-making.

The discussion underscored the importance of proactive measures in identifying both areas of risk and opportunity. Beyond merely addressing struggling customers, we must responsibly leverage growth potential. Despite existing challenges, opportunities for growth emerge, especially among consumers who have improved their financial standing post-pandemic. Lenders are encouraged to explore these opportunities and utilize insights beyond traditional risk scores to effectively identify and target key consumer segments.

If you had a magic wand, what would you change about the current environment that you think would make the biggest impact?

  1. The shortage of affordable housing was highlighted as a significant challenge. The panelists expressed the view that addressing this issue could unleash opportunities in the market, allowing consumers to tap into home equity, pay down debts, and stimulate positive cascading effects.

  2. Speakers shared concerns about inflation and its negative impact on consumers. They expressed a desire to see inflation return to levels suitable for a growing economy, aiming to alleviate the price pressures experienced by the American consumer.

  3. The discussion explored metrics for measuring success, questioning whether gross domestic product (GDP) is the best indicator of consumer well-being. Our experts shared the importance of reducing uncertainty in the economy, suggesting that increased data access and analysis could contribute to a better understanding of consumer trends and decision-making.

  4. The panelists stressed the significance of leveraging data to gain insights into various economic aspects, including credit scores, debt-to-income ratios, and home values. They see data as a crucial tool for navigating economic challenges and improving decision-making processes.

In closing

If you enjoyed today’s insights, we hope you’ll mark your calendars and register for our next Market Pulse webinar on January 25, where we’ll discuss navigating consumer challenges and what affordability means for different segments.

You can register for upcoming webinars as well as find our monthly Small Business Insights and our National Consumer Credit Trends Reports here

1 AC Cutts & Associates

Olivia Voltaggio

Olivia Voltaggio

Senior Content Manager, US Information Solutions

Olivia joined Equifax in 2019. She graduated from the University of Illinois at Urbana-Champaign with a Bachelor of Science degree in advertising and a Bachelor of Arts degree in English. Olivia holds an Editing Certificate from the University of Chicago Graham School.