Household debt reaches record-high $17.05 trillion
Americans have been struggling with high inflation for more than two years. The last time inflation was reported below its 2% target rate was in February 2021 (1.7%). Currently, inflation stands at 4.9%. This is down from the peak of 8.9%, a 40-year high, in June 2022.
Rising consumer prices have taken a substantial bite out of household budgets. Yes, employee wages have been rising, but not fast enough. For 25 consecutive months, inflation has outpaced annual wage growth. In other words, the rise in consumer prices has been greater than the rise in wages. To bridge this gap, Americans have been forced to take on debt. A lot of debt.
In its Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York reports that total household debt in the January-March first quarter reached a record-high $17.05 trillion. This is a $148 billion (+0.9%) increase from the fourth quarter of 2022. Of the total $17.05 trillion in current household debt, $12.39 trillion is housing debt (home mortgages and HELOCs) and $4.66 trillion is non-housing debt, such as credit cards, auto loans and student loans.
Since the end of 2019, right before the pandemic, total household debt has increased a massive $2.9 trillion, or 20.5%. But this increase has not been evenly distributed across the American population. Of the six age groups classified by the Federal Reserve, age 70+ saw their household debt increase by a whopping 33.8%. The second largest percent increase was the age group 40-49, who saw their household debt increase by 23.1%. This was followed by age groups 30-39 (+22.8%), 60-69 (+19.9%), 50-59 (+16.6%) and 18-29 (+3.7%).
Since the pandemic, credit card debt has exploded. In the first quarter, total consumer credit card debt was $986 billion, also a record high. The number of credit cards held by consumers rose 8.4 million from the prior quarter to an all-time high of 572.9 million. That’s a lot of credit cards.
Consumers are also having a much harder time paying off their debt. Credit card delinquencies have been steadily rising. In the first quarter, 8.24% of all credit card balances were considered seriously delinquent – a payment hasn’t been made in more than 90 days. This is a 12-month high. 6.5% of all credit card balances are 30 days or more delinquent, the highest rate in three years.
Home foreclosures and consumer bankruptcies are also rising. In the first quarter, 35,660 foreclosures were reported, the highest quarterly total in nearly three years. Consumer bankruptcies rose 3.8% to 102,440, a near two-year high.
A cursory response to this steep rise in household debt is that consumers should simply be more mindful of their spending habits and not overextend themselves with a mountain of debt. But that ignores a greater issue.
The hallmark of this two-plus year inflationary cycle is that many of the goods and services hardest hit by inflation are basic necessities – food, clothing, shelter and energy. These are not high-end luxury items that consumers can do without. Americans need to buy these items to provide for themselves and their families. And to do that, for many consumers, that means taking on a mountain of debt.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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