The latest update on Americans’ debt and credit developments from the Federal Reserve Bank of New York showed that total U.S. household indebtedness was $13.95 trillion at the end of the third quarter of 2019. That was a $92 billion (0.7 percent) increase from Q2 2019 and the 21st quarterly gain in a row. On the state level, California in Q3 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 $1.28 trillion (10.1 percent) above the 2008 peak.
Rising mortgage, automobile, and student loan debt have all been big drivers of this uptrend but encouragingly only 4.8 percent of the total debt outstanding was in some stage of delinquency at the end of September. That was the highest reading in two years but still near the low-end of the historic range and not even half of the extreme seen during the last recession. Further, 186,120 consumers had a bankruptcy notation added to their credit report in Q3, a new all-time low. 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 both newly delinquent (at least 30 days past due) and seriously delinquent (90+ days late) status have in most areas stabilized or even declined over the past few years.
Credit cards are an exception, which agrees with the recent slowdown in revolving credit utilization. If the labor market continues to tighten, the resulting pickup in wage growth could help consumers pay down their debt at a faster rate, and ultimately have more disposable income to put to work in a tax-advantaged retirement account. Even for those who may not be able to immediately increase their 401(k) contributions, eliminating debt would still put them on a significantly stronger financial footing in old age. Indeed, most borrowers likely anticipate that they will be able to pay off all of their financial obligations in a reasonable timeframe, but Americans ages 60 and older still owed around $3.29 trillion in Q3, with 16.4 percent of this debt consisting of automobile loans and credit card balances.
Sources: FRBNY, FRBG
Post author: Charles Couch