We are in uncharted economic territory. This month’s Market Pulse
webinar is a must-listen to get ahead of the economic fluctuations we
are experiencing. From detailed trends to grand-scale overviews, this
holistic view of market trends will supply you with the knowledge you
need to focus on moving forward. In this recap, we cover topics including:
state of mortgage and auto loans,
and, what we expect from the looming student loan
Our discussion starts with Amy Crews Cutts, Chief Economist
at AC Cutts & Associates, sharing the current economic
outlook, followed by Jesse Hardin, Risk Advisory Practice at
Equifax, who details the lending and credit arenas. Rounding out
timely and prescient topics are
Tom Aliff, Tom O’Neill, and David Sojka, who represent the
Risk Advisory Practice at Equifax.
Macroeconomic Observations and Updates
In a nutshell: consumer spending is holding
steady, inflation is waning, but financial stresses are
starting to show.
We want to look at spending overall to see where movement is
taking place, and consumer spending is above projections.
Interestingly, especially when it comes to services, consumers are
spending more - to the tune of almost a trillion dollars relative to
June 2022. Where is this extra cash coming from? When we talk about
inflation, often economists take out food and energy because they
are such volatile categories from an overall spending capacity,
however food and energy spending have rapidly declined.
Additionally, we are starting to see wages above inflation.
Still, we have seen a 15-year rise year over year in personal
bankruptcies, but a 40% rise year over year in business
bankruptcies. While it is getting closer on the business side to
pre-pandemic levels, consumers are still far away from that level.
So, what comes next? The good news is, we are preparing for
not when, but if a recession occurs, and we expect the Fed to begin
cutting interest rates in the first half of 2024. Otherwise, we will
be closely watching the serious debt ceiling conversations taking
place in Washington, D.C., as well as what happens as student loan
Consumer Credit Insights and Trends.
As we give an overview of originations and portfolio
consumer credit trends, keep in mind the data we review is lagged.
This means portfolio performance information, like account balances,
utilizations, and delinquencies, is based on June 2023 data, while
originations are based on two months prior - in this case, April 2023.
One thing we know: people are not buying or selling houses.
Just considering first mortgages, we are still a whopping 58% below
the same year-to-date period in 2022. Further, mortgage debt makes
up 73% of the overall consumer debt.
Regarding other loans, auto is also down, but the news is
that subprime share has fallen to slightly over
13% YTD after trending downward since 2021; it now represents the
lowest subprime share in over ten years. For unsecured personal
loans, we observe a steep decline in both originated balances and
number of accounts in comparison to last year’s values.
Revolving debt has reached its highest levels at more than
$1.05 trillion, while non-revolving debt contracted over the last
two months to almost $3.5 trillion, reflecting the credit tightening
we observed in auto and personal loans.
The Impact on Student Loan Debt Repayment - What We Know
Student loan debt is responsible for $1.5
trillion dollars out of almost $17 trillion dollars in total
outstanding consumer loan debt (3rd largest behind Mortgage
and Auto) based on Equifax credit trends
Resuming student loan repayments will stress personal
budgets, increasing monthly spending an average of 17%
for many households, and 25% for Gen Z
The longer borrowers are in non-payment status, the
harder it is to get a borrower to start paying again
Why should we care? What can we do to mitigate the impact?
Student loan debt repayment is something that will impact
consumers’ ability to pay their obligations on other debts beyond just
the student loan debts they owe. The customers who have student loans
are going to be under more financial stress, which will impact other
In any time of economic uncertainty, it is helpful to
increase the frequency of portfolio reviews. When, however, a
single event occurs - one that could be a shock to the system like
this - that frequency should increase. Hope is not a good
financial strategy. Being proactive, however, and understanding
the construct of the person within the portfolio, is the starting
point to staying ahead and better mitigating risk.
No one knows exactly what's going to happen once student
loan payments begin again. While there is data available, the truth
of the matter is this is a unique event and there is an emotional
aspect as many borrowers probably kept their student loans out of
mind for a long time. So, there is potential for a negative reaction
as well as a financial one. The way to adapt in uncertain times is
not to pause, but become resilient and prepared for whatever is next.
How to put insights into action.
Understand and quantify the impact of student
loans on your portfolio - which customers will be
impacted and how much risk they present
Increase the cadence of account reviews to
assess changes in your customers’ credit situations
and better limit losses by taking action faster
Remove blind spots and get notifications to changes
in customers’ credit that is happening outside your
While we are in a new arena, there are ways to overcome the
unknown and become risk aware. To get all the details and
information from this webinar, make sure to listen in full. You can
for next month’s webinar on Thursday, September 21st at 2:00 pm EDT.
To learn how to apply these recommendations to your
organization, please contact the Equifax Risk Advisory Team at email@example.com.