According to Fitch Ratings, the total debt service to income ratio for U.S. households is expected to rise from 9.9% in 2022 to 11.7% by 2025. Despite recent increases in market interest rates, this increase is relatively modest; however, it will likely have an impact on consumer spending next year.
Fitch’s head of U.S. regional economics, Olu Sonola, explains that the popularity of fixed-rate mortgages has helped mitigate the effects of higher rates on household debt service thus far; however, non-mortgage household debt service is projected to reach historic highs in 2024 due to rising credit card rates and resuming student loan payments. This could contribute to a slowdown in consumer spending.
Fitch’s projections also take into account a modest increase in household leverage (debt-to-disposable-income ratio) over the next few years and slower growth in both outstanding debt and income as nominal wage growth cools and unemployment rises by 2024.
This trend suggests that consumer spending may experience a slowdown come 2024.
