US household debts make headway, but aren't yet in the danger zone

Household debts passed a milestone in the first quarter of 2017, exceeding (in nominal terms) the total debts amassed at any point prior to or during the Great Recession of 2007-09. In the second quarter of 2017, these debts increased by 0.9%, again pushing to the highest levels ever recorded. Household debts have turned something of a corner in other ways, as well: every category of credit tracked by the New York Federal Reserve, excluding home equity loans, increased in its proportion that was newly delinquent (defined as delinquent by 30 days or more) in the second quarter. All of those excepting auto loans have done so for two quarters straight. Some consumers are starting to have more trouble paying off their debts in a timely manner.

Nevertheless, the nation's households still have far to go before they are in danger of approaching the pre-recession period in terms of leverage. Debts are calculated without adjusting for inflation, so now, more than eight years after the recession, households are still substantially less indebted in terms of purchasing power than in 2008. Moreover, credit inquiries, an indicator of consumer credit demand, remained distinctly low relative to historical standards, at 162 million in the second quarter-34% lower than at their peak in 2006. Credit ratings for both mortgages and auto loans also remain elevated relative to the entirety of the recorded period before the recession. Finally, the overall quality of debt-as measured by bankruptcy and foreclosure rates-is among the best recorded since these measures began in 1999.

In the second quarter of 2017, mortgages were responsible for more than half of the increase in debt levels. Auto loans and credit card debts increased, while student loans, unusually, remained unchanged (in general, student loan debt has been increasing as a share of total debt balances, although it stepped back in the second quarter of 2017.) Meanwhile, auto loan balances have not decreased since the second quarter of 2011. Although credit card balances did increase in the second quarter-to their highest level since 2009-this total, which is also unadjusted for population growth, remains 9.5% beneath its previous peak. American households have increased their willingness to borrow, and are doing so at an increased rate. But in the parlance of business cycles, the upward climb of household indebtedness remains young.