Are Consumers Still Addicted to Debt?

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America is known for being the largest debtor nation in the history of the world, but consumers are slowly finding a way to deleverage.

Consumers across the country are in less debt than they were earlier this year. According to the Federal Reserve’s latest Household Debt and Credit Report, total outstanding household debt declined $78 billion to $11.15 trillion in the second quarter. That is the lowest level since 2006 and 12 percent below the peak of $12.68 trillion in the third quarter of 2008. A large part of the decline was due to housing-related debt, but Americans are increasing their liabilities in other areas.

“Although overall debt declined in the second quarter, households did increase non-housing debt, led by rising auto loan balances,” said Andrew Haughwout, vice president and research economist at the New York Fed. “Furthermore, households improved their overall delinquency rates for the seventh straight quarter, an encouraging sign going forward.” While total mortgage debt decreased, total auto loan balances rose $20 billion from the previous quarter, representing the ninth consecutive quarterly increase and the biggest jump in seven years. In fact, auto loan debt has climbed $108 billion over the past nine quarters to recapture $800 billion for the first time since 2008.

Consumers also raised their credit card balances by $8 billion to $668 billion in the second quarter. The number of credit inquiries within six months — an indicator of consumer credit demand — was mostly flat. The amount of bills 90 or more days late edged lower to 10 percent.

Additionally, outstanding student loan balances increased to $994 billion as of the end of June — up $8 billion from the end of March. Separate reports already place this amount above $1 trillion. On the positive, the delinquency rate on student loans improved from 11.2 percent to 10.9 percent.

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The report confirms the sentiment on Wall Street as auto and credit card stocks have outperformed the market this year. Shares of General Motors (NYSE:GM) and Ford (NYSE:F) have surged 21 percent and 27 percent year-to-date, respectively. Shares of MasterCard (NYSE:MA) and American Express (NYSE:AXP) have gained 26 percent and 30 percent this year, respectively.

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