A Country In Debt – Record Paces of Household Debt
The Fed has just released significant economic data that shows some telltale signs that the American consumer is not as unharmed as several had believed. Somewhat underlooked by a positive Price Producer Index dropped this morning, the data for debt in the United States did not depict a favorable environment for the average American household. For the third quarter, total debt had increased a whopping $351 billion, being the largest nominal quarterly increase in 15 years. This records an 8.3% jump from last year’s third quarter, establishing a collective household total of debt at $16.5 trillion. The largest contributors to these worrying numbers are mortgage and credit card debt, which had a year-over-year increase of $1 trillion and $930 billion, respectively.
How did debt increase so fast, you may ask? Well, with recent record-high inflation and larger interest rates, Americans will incur a lot of debt if they keep their spending high – which they did. Despite the poor aforementioned conditions, consumer demand has remained particularly strong, potentially due to increased spending to compensate following the pandemic-era period of lockdowns and social distancing. This persistent increase and demand and the potential for accrued debt could have been forecasted from the previous earnings reports by several financial institutions in the United States. Bank of America, whose stock is up over 25% since their earnings call last month, reported higher-than-expected revenues due to a 10% yoy increase in their total payment volume. This came as a large surprise, but investors could have connected the dots to decide whether the U.S. consumer could have really afforded all these purchases with such high inflation and interest rates.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.