Household Debt Climbs in Q1, Finally Surpasses 2008 Peak

Outstanding household debt increased by a 1.2 percent in the first quarter, rising by $149 billion to a new record level of $12.73 trillion, the Federal Reserve Bank of NY said yesterday. Americans reduced their debts during and after the 2007-09 recession to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. Matthew Mish, head of global credit strategy for UBS, expects auto loan delinquencies to continue to rise and says the general increase in delinquencies for non-mortgage debt could be an early signal of an eventual deterioration in the economy.This quarter saw a notable uptick in credit card debt transitioning into delinquencies, a continued upward trend of auto loans transitioning into serious delinquencies, and student loan transitions into serious delinquencies remaining high. The “flow” charts measure the rate at which balances transition into delinquency by comparing balances that have newly become delinquent vs. balances that were current in the previous quarter. Of the $764 billion in credit card balances as a whole, the credit card with 90 or more day delinquency rates deteriorated and they now stand at 7.5%. Finally, current household debt makes up less of the United States economy than it did in 2008.Also, household debt represented almost 100% of personal income in 2008, compared with 80% today, presenting a far lower risk to individual solvency and the broader economy, said Mark Zandi, chief economist of Moody’s Analytics.The new record debt level should be neither grounds for celebration nor cause for alarm, said Lee. Ford said Wednesday it’s cutting 1,400 jobs in North America and Asia to improve profits as the US auto industry recorded a fourth straight drop in monthly sales in April, after eking out a record year in 2016.With some 72 percent of the US GDP driven by consumer purchases, the mounting concerns over student loans, especially non-performing loans (NPLs), are becoming an increasingly prominent factor is assessing the prospects of any further economic acceleration.Household debt has been increasingly shifting toward older and more creditworthy borrowers, Fed researchers said. That’s down from the post-recession peak of 8.7 percent in early 2010.While caution may be good for banks’ balance sheets, it doesn’t offer much relief for automakers, who relied on cheap credit to fuel a seven-year stretch of booming sales. Student loan delinquencies remain high. Nevada’s figure was 3.8 percent in the first quarter, and Arizona’s was 3.4 percent.