Minnesotans are feeling the economic squeeze

A couple of weeks ago, KSTP reported:

…Although abortion remains a top issue to many voters the economy is the most important issue influencing voters in 2024.

According to our new KSTP/SurveyUSA poll, 28% of “likely voters” cited the economy as the most important issue, followed by immigration at 15% and health care at 12%.

It isn’t hard to see why.

The Star Tribune reported recently:

After declining early in the COVID-19 pandemic — when stimulus money and loan payment pauses buoyed personal balance sheets — U.S. consumer debt has swollen, with household debt reaching $17.5 trillion in the fourth quarter of 2023, up from $14.15 trillion in the fourth quarter of 2019, according to the Federal Reserve Bank of New York.

Nearly all states experienced an increase in per capita debt last year. In Minnesota, the total debt balance per capita in the fourth quarter was $62,680, up from $62,240 at the same time in 2022, the Fed data shows. Though that number has risen steadily in Minnesota since 2014, the data shows student loan and credit card balances declined between the fourth quarters of 2019 and 2020.

Consumer spending has stayed strong despite persistent inflation and elevated interest rates, but cracks are beginning to show, including an uptick in delinquency ratesdeclining personal savings and ballooning credit card debt. Mortgages comprise the lion’s share of the U.S. consumer debt balance, but it’s worrisome that credit cards are starting to eat up a bigger portion, said Tyler Schipper, an associate economics professor at the University of St. Thomas.

“I don’t think we’re at ‘credit card debt is a systemic risk to the economy’ yet,” he said. “But those types of revolving debts, I think, are unfortunate features of the U.S. economy. And it can lead to some of the most heartbreaking stories around personal finances. They tend to affect the people that are least able to bear them.”

Back in December, I wrote:

To some extent, then, I see the American economy going into the new year as a race between two factors: one is the squeeze on American’s spending which will drive economic activity down and the other is loosening credit conditions as inflation falls and the Fed cuts rates which will, in the short term at least, drive economic activity up. 

The Star Tribune report bears that out. People have run down Covid era savings and borrowed to keep up with rising prices, but as interest rates rise and remain elevated, that avenue closes. That may be happening. When it does, consumer spending will fall and the economy will slow. The Star Tribune goes on:

Increasingly, debt is becoming unmanageable. At the end of 2023, 3.1% of outstanding debt was delinquent, according to the New York Fed. On an annualized basis, about 8.5% of credit card debt and 7.7% of auto loans entered delinquency.

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” Wilbert van der Klaauw, economic research adviser at the New York Fed, said in a statement. “This signals increased financial stress, especially among younger and lower-income households.”

With inflation still stubbornly high, Americans can expect little relief from lower rates in the immediate future.

This comes after nearly four years of “Building Back Better” and “Bidenomics.” Significantly, Sen. Tina Smith tweeted ten times about “Bidenomics” last year. She has not mentioned it since October.