U.S. Consumer Credit: Deleveraging Continues, but…

The Federal Reserve issued the quarterly consumer credit report late yesterday.  The four-year downtrend in aggregate consumer debt continued, falling another $74 bln in Q3 to $11.31 trillion.  This is a 0.7% decline over the quarter.  At the end of Q3, US consumer debt was $1.37 trillion below  the peak in Q3 2008.
Mortgage debt is the largest component.  It fell 0.15% on the quarter to $8.03 trillion, which is the lowest since 2006.  However, the bulk of  the reduction of mortgage debt may be over.  New mortgage debt rose 2.3%, while  home equity debt continued to fall (-2.%). Rising home prices, increase in residential investment, coupled with a mutli-year high in consumer confidence, warns that mortgage debt may begin growing again.
Non-mortgage debt increased.  Auto loans increased by $18 bln in Q3, the sixth consecutive quarterly increase and at $768 bln, it stands a a 2-year high.  Student loans increased by $42 bln.  While the delinquency rate of mortgages has fell (5.9% from 6.3%), student loans in arrears have increased.  Credit card debt rose by $2 bln.

2 Responses to “U.S. Consumer Credit: Deleveraging Continues, but…”

WillsDecember 4th, 2012 at 9:06 pm

The decline in mortgage debt is heavily driven by defaults and refinancing to lower rates with defaults being the biggest driver. Any increase in consumer debt will be an indication that the American people have decided that they don't have to save for retirement. However, without growth in consumer spending the economy will not grow and the median family income is not growing, Either real wage increases have to occur or the economy will stagnant. Increases in debt would only provide a short term solution to growth.

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Richard has published papers on wages policy, the taxation of financial arrangements and macroeconomic issues in Pacific island countries. Views expressed in these articles are his own and may not be shared by his employing agency. He is the author of How to Solve the European Economic Crisis: Challenging orthodoxy and creating new policy paradigms