Woo Hoo! Another Record Broken!

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May 31, 2017 by Mark Hammerstrom

We Americans just love breaking records, don’t we?  Whether it is the stock market, sports, weather, you name it, hardly a day goes by when we don’t break a record of some sort.

Well we broke another one during the first quarter of 2017:  we are now at all-time highs for consumer debt in our country—a level not seen since the recession of 2008!

A record to celebrate?  One would think not, at least at first glance.  Yet perhaps not quite as alarmist as it may seem either.

According to the “Quarterly Report on Household Debt and Credit” issued by the Federal Reserve Bank of New York, during the first quarter of 2017 total household debt reached $12.73 trillion, which “finally surpassed” (their words, not mine) the $12.68 trillion peak reached in 2008.

As a percentage, the change represented just a 1.2% increase, but that still represents a $149 billion change quarter to quarter.

To my mind, those are still huge numbers.

The New York Fed points out that this growth represents a solid three years of increasing debt largely a factor of steady, if slow, economic growth in the country.

In its press release of May 17th they seem to want to make sure we keep things in perspective.  That is, any parallel with 2008 may be misplaced.

Quoting the press release: “…although debt has reached record heights, this number is in nominal terms and it took an unusually long time from a historical perspective for debt to reach the 2008 level again.”

According to the Research Officer at the New York Fed, Donghoon Lee, “Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level is neither a reason to celebrate nor a cause for alarm.”

The report notes that delinquencies still remain, in aggregate, quite low—about 4.8% of outstanding debt is in some stage of delinquency.

Yet there are troubling signs: “While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types. Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”

Some key, if admittedly wonky, takeaways from the report (directly quoting the press release here):

Housing Debt

  • Mortgage balances increased again while originations declined and median credit scores of borrowers for new mortgages increased, reflecting tightening underwriting.
  • Mortgage delinquencies worsened slightly and foreclosure notations increased but remained low by historical standards.

Non-Housing Debt

  • Auto loan balances continued their steady rise seen since 2011 while auto loan originations declined and median credit scores of borrowers for these new loans increased.
  • Credit card balances declined, delinquencies increased and the aggregate credit card limit increased for the 17th consecutive quarter.
  • Student loan balances increased – marking an increase in every year throughout the 18-year history of this series.

Bankruptcies & Delinquencies Overall

  • Aggregate delinquency rates were roughly flat.
  • Bankruptcy notations reached another low [in] the 18-year history of this series.
  • This quarter saw a notable uptick in credit card debt transitioning into delinquencies, a continued upward trend of auto loans transitioning into serious delinquencies, and student loan transitions into serious delinquencies remaining high.

By and large these debt and delinquency trends, while apparently still manageable, cannot continue unabated.  We are fortunate that the economy continues to grow (albeit slowly), markets are for the most part stable, as is job growth.  Consumers can still afford to pay their debts, but at all-time highs there is not much wiggle room for sudden shifts in the economic or political landscape.  We continue to stress to our clients that they maintain vigilance on their accounts receivables and debt levels despite the seeming ‘goldilocks’ window we currently find ourselves in.

At United Credit Service, we are committed to keeping our valued clients and business partners appraised of economic trends which may impact their businesses, and in particular helping them manage their accounts receivable and bad debt.  Through these blogs, our newsletters and other communication channels we hope to provide additional insight for perspective and planning.  We are here to help!

Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing effective, customized one on one management and recovery solutions for our business partners. Visit our website at http://www.unitedcreditservice.com, call 877-723-2902, or check out our YouTube video.

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