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Consumer Spending Headed for Slowdown in 2024

The total debt service to income ratio of U.S. households will increase to 11.7% by 2025 from 9.9% in 2022, Fitch Ratings reported. Although it’s a relatively modest increase despite recent sharp increases in market interest rates, the rating agency expects it to impact consumer spending next year.

“The dominance of the 15-30-year fixed-rate mortgage has played a significant role in blunting the impact of higher rates on aggregate household debt service; however, the sharp increase in credit card rates and the resumption of student loan payments will drive non-mortgage household debt service to historic highs in 2024,” said Olu Sonola, head of U.S. regional economics at Fitch. “This will likely contribute to a slowdown in consumer spending in 2024.”

Fitch debt service projections assume that household leverage, i.e. household debt to disposable income, will modestly increase in 2024 and 2025, reaching 103.6% in 2025 from 101.8% in 2022. While growth in debt outstanding is expected to moderate as rates rise, household income growth is expected to slow more sharply as nominal wage growth cools and unemployment rises in 2024.

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