Sunday, February 23, 2014

Household Debt Increases – Is This Good or Bad?

Feb 19th, 2014 @ 1:27 PM by Amber Nelson

Americans took on $241 billion more in debt during the fourth quarter of 2013, according to a new report from the Federal Reserve Bank of New York, a 2.1 percent from the previous quarter and the largest quarterly jump since the end of 2007. Compared with the year before, debt also rose $180 billion. The new data has left economists wondering: Does the increase represent an America that is more financially stable or less?

“This quarter is the first time since before the Great Recession that household debt has increased over its year-ago levels suggesting that after a long period of deleveraging, households are borrowing again,” said Wilbert van der Klaauw, senior vice president and economist at the New York Fed in a statement.

Household debt can be a reflection of economic optimism when borrowers are investing in long-term purchases like homes and cars, but increases in credit card debt can signal that consumers are in over their heads fiscally. And growth in student loan debt, while an investment in the future, creates an immediate difficulty for the economy as new graduates battle their student loans before buying homes.

In the fourth quarter of last year, the growth in household debt was fueled by both types of borrowing. Mortgage debt jumped $152 billion in the 2014 fourth quarter and auto loan debt rose $18 billion, but credit card debt also grew by $11 billion and student loan debt saw the biggest increase, rising 5.2 percent from the third quarter.

Add to that mixed bag of data a few more puzzling facts. During the fourth quarter serious delinquencies on all household debt fell an average of 5.0 percent. That’s good. Yet during the same time there was very little improvement in unemployment rate and no increase in wages. That’s bad. Perhaps the data taken all together suggests that the economy is definitely recovering, but at very different rates among various segments of the population.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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