US household debt reaches record high of $13.5trn
By Abigail Townsend
Date: Wednesday 13 Feb 2019
(Sharecast News) - American household debt rose to $13.5trn at the end of 2018, fuelling concerns that the US is ill-prepared for any potential downturn in its economic fortunes.
According to a debt and credit report published by the Federal Reserve Bank of New York, aggregate borrowing to cover mortgages, credit cards, student loans and car loans was $13.5trn in the fourth quarter, a record high and the eighteenth quarter in a row that debt has risen.
Mortgage borrowing, which makes up the largest proportion of household debt, dipped for the first time in two years. But other forms of borrowing, such as credit cards, rose. Total borrowing now exceeds the pre-crisis peak of 2008, and is up by a fifth from post-crisis lows in early 2013.
Credit card and car loan delinquencies - defined as payments being late by 90 days or more - also rose in the fourth quarter.
Russ Mould, investment director at AJ Bell, said: "This has possible implications for auto demand in the USA, which has already flattened out, and leaves American consumers exposed to any unexpected loss of their job or increase in interest rates and thus borrowing costs."
In his State of the Union speech earlier this month, US president Donald Trump said there had been an "economic miracle" in the US. The unemployment rate is 4%, wage growth is approaching a nine-year high and the latest figures show that annualised GDP growth in the third quarter of 2018 was 3.4%.
Companies have generally seen strong improvements in profitability as well.
However, Mould argued: "The foundations of America's economic growth may not be as robust as they seem.
"The data show that the only way may be up when it comes to unemployment rates, given the current level is only a fraction above 50-year lows. And if that is the case, many Americans may be poorly prepared for any ill-wind that does blow, judging by the latest US household debt data."
Mould argued that taking in household and federal and state debt, "America has never been more indebted".
He added: "Financial markets still seem to be basking in the benefits of cheap money and the sugar rush provided by Trump's tax cuts, which many likened to Reaganomics. Yet Ronald Reagan inherited a much healthier financial position."
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