As the US and the rest of the world continue to recover from the recession, Americans are becoming increasingly comfortable with debt. But many of us may be getting a little too comfortable, and that’s not good.
Consumer confidence – or looming debt crisis?
According to the Federal Reserve, consumer credit, which is a measure of non-mortgage debt including student loans, credit card debt, and car loans, rose by a seasonally adjusted $18.56 billion in May 2016 from the prior month. This represented 6.18% seasonally adjusted annual growth rate, almost 50% higher than the reported April rate. And after the particularly slow real estate market of the last seven years, mortgage debt has begun increasing, as well. Although debt relative to Gross Domestic Product (GDP) has declined since the recession officially ended, it is still greater than almost all years since World War II, and U.S. households now hold trillions in total debt.
It would appear that Americans have begun to restore their exuberant confidence in the economy, but it is also a cautionary note, as we’ve seen where such exuberance has led us in the past. Already, analysts are expressing concern in their forecasts of higher credit card losses over the next year, based upon a rise in overdue accounts.
Household debt isn’t necessarily bad, and the overall rise in debt can be considered to be a mark of increased consumer confidence, which is a good thing. But debt is emphatically not a good thing when it spirals out of control.