Consumer Debt Falls to Pre-Recession Level

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The total amount of debt held by Americans fell again in the first three months of 2013 and stood at the lowest level since the middle of 2006, the New York Federal Reserve said Tuesday. The level of household debt fell by $110 billion, or 1 percent, to $11.23 trillion, mainly because consumers reduced their mortgage obligations and used credit cards less. Household debt is now 11.4 Percent lower vs. a peak of $12.68 trillion in 2008.

Graph: New York Federal Reserve

This is one reason retail sales are holding up. Mortgage debt slid to $7.93 trillion from $8.03 trillion in the fourth quarter to mark the lowest amount since late 2006. Mortgage debt fell in the first quarter even though more home loans were issued than in the prior quarter.

Delinquency rates improved across the board: mortgages (5.4 percent from 5.6 percent), HELOC (3.2 percent from 3.5 percent), auto loans (3.9 percent from 4.0 percent), credit cards (10.2 percent from 10.6 percent) and student loans (11.2 percent from 11.7 percent).  The overall 90+ day delinquency rate dropped from 6.3 percent to 6.0 percent this quarter, below the 8.7 percent peak from three years ago.

“After a temporary deceleration in the previous quarter, the data suggest that household deleveraging has resumed its previous trajectory,” said Wilbert van der Klaauw, senior vice president and economist at the New York Fed. “We’ll look to see if this pace of debt reduction and delinquency improvements will persist in upcoming quarters.”

Retail sales beat expectation in April, up 0.1 percent, 3.75 percent in a year, following a drop of 0.5 percent in March (originally down 0.4 percent). Analysts forecast a 0.3 percent decline. Motor vehicles were unexpectedly up 1.0 percent after a 0.6 percent dip in March. Unit new motor vehicle sales slipped in April but from high levels, according to manufacturers' data. Core strength was in building materials & garden equipment; clothing; nonstore retailers; general merchandise; and food services & drinking places. There may be some seasonality issues but discretionary spending appears to be picking up.

Graph: Econoday

Other positive developments in the Q1 New York Fed report included a rise in the share of 30-60 day delinquent mortgage balances that transitioned to current and a decline in the rate at which current mortgages transition into delinquency.  Nearly 35 percent of 30-60 day delinquent balances became current compared to 28 percent in the previous quarter. Moreover, 1.6 percent of current balances became delinquent compared to 1.8 percent in the previous quarter.   
Highlights from the report include:

• Outstanding student loan debt increased $20 billion to $986 billion.
• Total mortgage debt decreased to $7.93 trillion from $8.03 trillion.   
• Auto loans increased $11 billion to $794 billion.
• Credit card balances decreased $19 billion to $660 billion.
• HELOC balances fell $11 billion to $552 billion. 
• Mortgage originations rose for the sixth consecutive quarter, to $577 billion.

Inflation and energy prices in particular are declining, giving consumers more room to spend, which will boost Q2 economic growth as well.

Harlan Green © 2013

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