NJ Job Market: Mixed Signals - Can You Still Afford Your Home as Debt Soars?
Time to cut the credit cards up?
Recent data from the Federal Reserve Bank of New York paints a complex picture of American consumers' financial health. While debt continues to climb, the context and potential implications for the housing market, including New Jersey's, are worth a closer look.
Key takeaways:
Debt on the rise: Consumer debt reached a record high of $17.29 trillion in Q3 2023, a 4.8% increase from the previous quarter.
Mortgages lead the surge: Mortgages remain the largest debt category, rising 4% year-over-year and a staggering 23% from three years ago.
Credit card debt soars: Credit card balances witnessed the sharpest increase, jumping 16.6% in just one year, exceeding 15% growth in each quarter since Q3 2022.
Delinquencies climb, but remain below pre-pandemic levels: Despite rising debt, serious delinquencies on credit cards (90+ days late) are below pre-pandemic levels, although they have increased from 3.69% to 5.78% year-over-year. Younger borrowers (18-39) are disproportionately impacted by delinquency.
Bankruptcies trend upward, foreclosures remain low: New bankruptcies have been rising since early 2022, while foreclosures have increased slightly from Q1 2022 but remain significantly lower than pre-pandemic levels. The low foreclosure rate is partly attributed to many homeowners securing sub-4% mortgage rates and building equity.
So, are we on the brink of a recession and housing downturn?
The data suggests a mixed picture. While rising debt, particularly the significant increase in credit card balances, can be concerning, it's crucial to consider the context.
Strong labor market, with nuances: A strong national labor market with low unemployment (3.7% as of December 2023) has allowed consumers to continue spending despite rising interest rates and inflation, mitigating the immediate risk of widespread defaults. However, the December jobs report also revealed some underlying shifts:
Job growth is slowing down: While the economy added 216,000 non-farm jobs in December, it reflects a slight slowdown compared to previous months.
Job gains are concentrated in specific sectors: Most new jobs were in government, healthcare, social assistance, and construction, while transportation and warehousing lost jobs.
Labor force participation is declining: The civilian labor force declined by 676,000, potentially indicating people leaving the workforce or facing difficulty finding suitable employment.
New Jersey, in particular, has seen a mixed bag in its labor market.
Unemployment is slightly higher than national average: While the national unemployment rate sits at 3.7%, New Jersey's unemployment rate was 4.8% in December 2023. This is 1.1 percentage points higher than the rate at the end of 2022.
Job growth is present, but unevenly distributed: New Jersey added an estimated 12,200 non-farm jobs in December 2023, closing out the year with a net increase of 69,600 jobs. However, some sectors, like leisure and hospitality, have seen job losses.
Favorable housing market conditions, with caveats:
Increase in new listings and decrease in listing times: New Jersey recently witnessed an increase in new listings and a decrease in average listing times, indicating a potential shift towards a more balanced market for buyers and sellers.
Low foreclosure rates: Similar to the national trend, New Jersey's foreclosure rates remain low due to locked-in, low mortgage rates and built-up equity in homes.
However, the situation warrants close monitoring.
Impact of a weakening labor market: If the national or New Jersey-specific labor markets weaken significantly, it could strain consumers' ability to repay debt, potentially leading to higher delinquency rates and impacting the housing market.
End of student loan forbearance: The upcoming end of federal student loan payment forbearance has the potential to exacerbate financial burdens and impact other debt repayments, potentially impacting the housing market.
It's important to remember that correlation doesn't always equal causation. While rising debt levels in the past have been associated with recessions and housing downturns, the current economic landscape is unique with a strong labor market despite the Federal Reserve's interest rate hikes.
Conclusion:
While the data raises concerns about rising consumer debt, the broader economic context, particularly the resilience of the national labor market, suggests a more nuanced picture. However
