As tumultuous as the current economic field may seem, it’s not all doom and gloom as Q1 comes to a close. 

According to Joseph Mayans, Chief Economist at Experian, there are signs of a more optimistic 2024 than we had in 2023. He shares his economic and credit outlook for the year ahead, along with consumer credit trends and potential risk areas. 

With consumer spending on the rise, low unemployment rates, and an unexpectedly resilient market, we’re looking at a solid growth picture. 

Key factors shaping a more optimistic 2024 compared to 2023

So far, economic growth has exceeded expectations, and though there is still some talk of a recession, it’s not looking as dire as once believed.

“Probably the most surprising thing is the resiliency of the labor market,” Mayans said. “If you look back over the last three months, we’re adding an average of 260,000 jobs a month. Before the pandemic, where we also had a very low unemployment rate, three and a half 3.7%, we were adding about 180,000.”

This indicates resilience in the labor market, surprising economists. Unemployment overall also remains very low. 

“When you think about the economy, consumer spending drives two-thirds of growth,” Mayans said. “That's where that drive has been. And I see continued growth this year. And so to that, as well, consumer spending has been stronger than I think many economists would have expected at this point.”

Despite possible concerns of too rapid of growth, Mayans doesn’t share that view. 

There was a question earlier last year of whether or not the unemployment rate needed to rise materially so the economy slows and inflation slows, but now, the answer appears to be no. 

“You've seen inflation make pretty significant progress over the last year — it may not be exactly where the Fed wants to see, inflation has picked up a little bit in recent months — but overall, it's moving in the right direction,” he continued.

Credit: availability, areas of growth, and demand

According to Mayans, an interesting dynamic played out over the last year in the form of having a strong economy, a solid labor market, and good spending, with slowed credit growth.

Credit growth slowed for two main reasons: 

• Recession concerns
• Rising delinquencies 

“Last year, even though the economy was good, people are now waiting for the next shoe to drop,” Mayans said. “And then you have the institutions that are much more cautious in what they're doing with their investment lending.”

As delinquencies rise, institutions tighten their lending standards and increase lending standards. That reduces the supply of credit. Further, interest rates remained high, which slowed the demand for credit.

“What I'm looking for this year to anticipate this turnaround is really what develops in those three segments,” Mayans said. “And if you look at recession concerns — just for instance, eight months ago when I asked a roomful of people, ‘Do you think there's going to be a recession?’ Every hand in the room raised. Today, I just spoke to 7,580 people, asked the same question, and not a single hand raised.”

As concerns around a recession ebb, credit growth is set to rise once more, even with the Fed planning between three and four rate cuts for 2024.

The housing market and potential risks on the horizon

The cost of living challenges have hit the lower income consumer the most, but are not isolated there — recently cost of living stressors have begun to creep into different brackets.

“If I was looking at the percentage of accounts for credit cards that are rolling into higher status and delinquency, when you look at the subprime segment, obviously, it's been more of a steep angle. But recently, in the past couple of months, you've seen it plateau out a little bit,” Mayans said.

One factor Mayans is keeping a close eye on is rent prices.

Since the beginning of the pandemic, rent costs have gone up 30%. Even if an overdue rent payment isn’t reported to the bureau and won’t affect your credit score, that doesn’t mean there isn’t stress attached to missing payments.

“If you look at the segments, the percent of renters that are renting out apartments that are $1,500 to $2,000, their rental stress and their rate of increase with a negative payment behavior peaked in 2022, but it's moderate,” he said. “The higher income bucks like $2,500 to $3,000, we actually saw a much steeper increase in that it's not quite as high overall, but a steeper increase and we haven't seen much improvement there.”

As remote workers move into areas, the rental and home prices rise, and a long-time renter either has to eat the cost or move, making for some precarious situations.

“Still, if you look at the number of people who are filing for unemployment each week, it's still below pre-pandemic levels,” Mayans said. “Wage growth is exceeding inflation. 

If you look at real disposable income — incomes after tax adjusted for inflation — on a year-on-year basis, that continues to improve, and net worth for households is roughly 30%.”

Time will tell which way the markers will lean. In the meantime, it’s interesting to see numbers settle — almost — back to where they were pre-pandemic or below.

Stay tuned for new episodes biweekly on the Leaders in Lending Podcast.