Consumers Swimming Out of Debt Ocean One Bucket at a Time

The stock market has bounced back smartly since the lows of March 2009. But consumers haven’t done quite as well. When a crisis comes, companies quickly and coldly cut costs by idling factories and laying people off. Corporations increasingly operate in the global economy, which means their fortunes aren’t tied to weak demand in the U.S. Consumers have been plagued by a weak job market and a horrific housing market.

Looking at the big report on credit released by the Federal Reserve Bank of New York, it appears that although going slowly, consumers are digging themselves out of debt. Although corporate profits and cash holdings are at an all time high, for consumers it takes a lot longer to restructure debt. The New York Fed only started including student loans in the data this year, and excluding student loans, total consumer debt stood at $10.791 trillion in the third quarter.

Consumer debt stands at its lowest level since the fourth quarter of 2006. Mortgage balances alone fell $114 billion, or 1.3%, and personal bankruptcy filings fell 18.8% from the third quarter of 2010. At 423,340 in the third quarter of 2011, it was the lowest quarterly total in bankruptcy filings since the fourth quarter of 2008. The number of credit card accounts open also fell from 492.19 million in the third quarter of 2008 to 383.27 million in the third quarter. “Balances on those cards were nearly 20% below their 2008 Q4 high,” the New York Fed notes. And, though the delinquency rate on all U.S. household debt rose 0.2% in Q3, the proportion of debt balances has been trending down.

“And so the slow-motion process continues. Instead of dramatic, rapid improvement in household balance sheets, we get slow, barely detectable ones. The numbers show a high level of stress, a fragile recovery, and plenty of pain to come for borrowers and lenders. But they also show that, over time, the excesses that built up in the last decade are slowly being worked out,” according to YahooFinance.