The latest update on Americans’ debt and credit developments from the Federal Reserve Bank of New York (FRBNY) showed that total U.S. household indebtedness was $13.54 trillion at the end of the fourth quarter of 2018. That was a $32 billion (0.2 percent) increase from Q3 2018 and the 18th quarterly gain in a row. On the state level, California in Q4 once again had the highest total debt balance per capita. Although the “Great Recession” officially ended in 2009, most Americans have stopped deleveraging only during the past few years. Still, the recent rebound has been considerable because overall household indebtedness is now $869 billion (6.9 percent) above the 2008 peak.
Rising mortgage, automobile, and student loan debt have all been big drivers of this uptrend but encouragingly only 4.7 percent of the total debt outstanding was in some stage of delinquency at the end of December. That was unchanged from the previous quarter and well below the level seen during the last recession. Further, 195,000 consumers had a bankruptcy notation added to their credit reports in Q4, 5,000 fewer compared to a year earlier and near the low-end of the historic range. Altogether this suggests that even though total household debt in America has surpassed the 2008 high, the quality of that debt has vastly improved. Moreover, flows into “newly delinquent” status have in many areas improved over the past few years. Credit cards are a clear exception, but current conditions are still much better than what was seen prior to the last recession.
Elsewhere in Q4, more banks have reportedly tightened their lending standards for consumer credit cards, according to the latest Senior Loan Officer Opinion survey from the Federal Reserve. However, even if some banks have become somewhat less eager to lend, borrowing limits in general still increased for twenty-four consecutive quarters (+1.5 percent in Q4 alone). The number of credit inquiries made by Americans within the past six months, though, fell to a record low in the fourth quarter. That means consumer credit demand softened even as the labor market tightened and wage growth picked up. Such behavior could indicate that households are using the strong economy to shore up their balance sheets, an encouraging development that would help people set more money aside for retirement and avoid carrying excessive debt into old age.
Sources: FRBNY, FRBGPost author: Charles Couch