While consumer spending can be a stimulus to the overall economy, mounting consumer debt can also slow future spending and be a drag on a recovering economy.
The latest statistics from the Federal Reserve of New York show that U.S. household debt rose 1.1% in the third quarter of 2013 to $11.28 trillion. That is the largest jump in the measurement since the first quarter of 2008.
What is driving the increase? “Mortgages, the largest component of household debt, increased by 0.7 percent in the third quarter of 2013. Mortgage balances shown on consumer credit reports stand at $7.90 trillion, up by $56 billion from the level in the second quarter of 2013. Balances on home equity lines of credit (HELOC) dropped by $5 billion (0.9 percent) and now stand at $535 billion. Household non-housing debt balances increased by 2.7 percent, with gains of $31 billion in auto loan balances, $33 billion in student loan balances and $4 billion in credit card balances.” In addition, the New York Federal Reserve indicated that a record 12% of student loans were delinquent by more than 90 days.
Consumers had been dumping debt, from $12.7 trillion in 2008, but that trend is shifting. Donghoon Lee, senior research economist at the New York Fed stated in the press release accompanying The Quarterly Report, “With non-housing debt consistently increasing and the factors pushing down mortgage balances waning, it appears that households have crossed a turning point in the deleveraging cycle.”1 Whatever the motivation for the increased borrowing, this pattern does not bode well for consumers.
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 Federal Reserve of New York, Third Quarter Report on Household Debt and Credit. (accessed January 5, 2014)