During our November 16 Market Pulse webinar, experts shared insights and actionable advice, empowering you to navigate the intricate tapestry of global economic trends. Our speakers included Dr. Robert Wescott, President, Keybridge Research LLC; Maria Urtubey, Risk Advisory Practice, Equifax; Tom Aliff, Risk Consulting Leader, Equifax; Rebecca Oakes, VP Advanced Analytics - Canada, Equifax; and Kamini Patel, Director of Client Analytics - UK, Equifax. Below are their responses to questions we were unable to answer during the November 16, 2023 webinar. 

Could there be a credit card "bubble"?

Robert Wescott: There is evidence that some stresses are building up on American consumers. The use of credit cards has risen notably in the past 18 months. The number of accounts that are revolving has increased. And the household saving rate is low, suggesting that pressures are building on households. The restart of student debt repayments as of October 1, 2023 is also a factor to watch. As long as job growth stays in the +120,000 to +180,000 net new jobs a month, consumers should be ok. But if the job market starts to weaken, there would be a need to re-assess credit card risk.

Maria Urtubey: Equifax data shows that non-mortgage debt continues to increase across most countries globally driven by demand and inflation. Increase in credit card utilization is of particular concern. Although the average utilization rate is 21%, the spread ranges from 15 to 50%, which means the situation varies greatly by population segment. A person with a card at 30% of utilization with an average interest rate of 22% has taken on a heavy debt burden especially if they are making minimum or partial payments on the balance.

Do the trends we are seeing align with what we saw in 2004-2006?

Robert Wescott: The heart of the problem in the 2004-06 period was the exploding housing market, the jump in housing starts to well over 2 million new starts per year, and the huge jump in the number of people taking out home equity loans—all driven by the sharp escalation of home prices. As long as home prices kept rising, the process could continue. But when housing prices peaked and started dropping (by about 30% nationwide from peak to trough!) the credit cycle started to break down. In particular, people who had purchased homes with 0% down mortgages (with an intention to flip them) quickly got underwater. There is no evidence today of a similar situation. Housing prices of course could dip more, but households appear much less over-extended. The risks of a housing/mortgage-driven financial crash appear quite low.

Are you seeing a specific vintage that is performing at lower levels than other vintages in consumer or small business? 

Maria Urtubey: On the consumer side, we have observed, based on Equifax data (and have heard anecdotally from our clients) that accounts originated in 2022 (a year affected by "score inflation" attributed in part to the extra cash received during the pandemic from government stimulus payments) have performed worse, on average, than those originated this year, potentially under tighter underwriting criteria.

The same is true for commercial accounts. Accounts opened during pandemic years, when the commercial credit market was affected by an influx of funds from PPP (Public-private partnerships) funds and EIDL (Economic Injury Disaster Loan) and repayment deferrals, are not performing as well as commercial accounts opened in 2023 according to Equifax data.

For more on the latest trends and what our experts are predicting for 2024, you can watch our replay, download our  presentation deck or read my webinar recap blog here. 

* The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.