Several consumer spending reports this month have shown that Americans are spending more — and, as usual, they are fueling that spending with debt.
When consumers start borrowing after a period of lull, it begs questions like why are they borrowing and how much? More importantly, will they be able to pay it back, or are we staring at another massive debt trap? The increase in household indebtedness in the last year was the highest since 2008, a $419 billion gain, according to a Federal Reserve Bank of New York (FRBNY) report. Most of this new debt came in the form of auto, home, and student loans.
Total consumer indebtedness as of March 31 was $11.65 trillion, the report said. In spite of the massive incremental rise in debt, the total is still 8.1 percent below the peak of $12.68 trillion clocked in the third quarter of 2008.
Like always, mortgages continue to be the biggest chunk of household debt, and it’s the size of expansion that can be unnerving given that the financial crisis was primarily a case of reckless sub-prime lending. Mortgage balances grew $233 billion in the year ended March 31, 2014, the largest year on year increase since 2008, FRBNY data shows.
On the bright side, credit card users and issuers have gotten wiser. Credit card balances are down by $24 billion, and the share of credit card debt as a portion of total household debt stayed flat at 6 percent. At 5 percent, the delinquency rate is back to what it was in 2003 after having risen up to 13 percent.