New Yorkers' debt woes grow amid slide in real income

New Yorkers are having trouble keeping up with debt payments as their incomes get squeezed by one of the country’s highest inflation rates, according to a new study. 

Consumer debt in the biggest US city has been growing faster than household earnings, and the cost of servicing that debt is increasingly weighing on residents, according to research published this week by the Office of the New York City Comptroller and the Federal Reserve Bank of New York. The study was based on anonymized credit reports from Equifax.

Americans in general are feeling the strain of high interest rates, with delinquency rates ticking up nationwide on credit card and auto loans. But for much of the country, that’s at least being offset by a slowdown in inflation. 

Not in the Big Apple, where it’s headed in the opposite direction. 

The local inflation rate, which was well below the national one for most of the Covid period, has climbed a full percentage point since the start of this year. It reached 4.1% last month, ranking alongside Dallas as the highest among major cities in the mainland US, while the countrywide figure dropped below 3% for the first time in more than three years. 

That’s taking a toll on New York living standards. Inflation-adjusted wages have fallen to an eight-year low, according to the study, and the drop is especially acute in the city’s less wealthy neighborhoods. 

That’s partly because “we disproportionately lost high-income earners” as a result of population shifts in the pandemic, said Brad Lander, the New York City comptroller, in a phone interview. “A lot of the new job growth in the city in recent quarters has been in relatively low-wage sectors like health care and social assistance.”

Reason for Concern

The earnings squeeze may be one reason why New Yorkers are becoming more reliant on debt. In the first half of this year, auto loan balances among the city’s residents were 6% above 2023 levels — an increase almost twice as big as the national one, according to the report. Credit card debt has risen 11% from a year earlier. 

Card and auto debts are now turning sour at a faster pace than before the pandemic. The Bronx — which has New York’s worst poverty rate — has more severe consumer debt problems than the rest of the city, with a delinquency rate for credit cards approaching 4%, according to the Fed study. 

To be sure, the delinquency numbers still aren’t especially high by long-run historical standards. What’s more, the sharp drop during the Covid crisis reflects the success of federal policies to alleviate the financial impact, according to Lander.

“One good thing that happens when people are provided with a little extra resource, as they were through pandemic stimulus, is that they pay down their debts,” he said.

But now the debt challenges for households are mounting. Among them is the looming expiry of one of the last remnants of the pandemic student-debt amnesty. Starting from October, delinquency rates on student loans will once again be added to credit reports. Currently this debt isn’t being reported, because the Department of Education ordered a one-year exemption when loan repayments resumed last year. 

The change is likely to put further financial strain on people with student debt. 

The New York numbers already show that those households are having more trouble keeping up with other credit payments “even before that deadline hits,” Lander said. “There’s reason to be really concerned, especially for those with student loans, when that is layered on top.”