America’s debt level hit another record high in the second quarter, after having surpassed its pre-crisis peak earlier in the year.
According to Reuters, total U.S. household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago, according to a Federal Reserve Bank of New York report.
There were modest rises in mortgage, auto and credit card debt, where delinquencies jumped. The proportion of overall debt that was delinquent, at 4.8 percent, was on par with the previous quarter. But the transition of credit card balances into delinquency “ticked up notably.” This could be the result of loosening lending standards that allowed borrowers with lower credit scores to access credit cards.
“The current state of credit card delinquency flows can be an early indicator of future trends, and we will closely monitor the degree to which this uptick is predictive of further consumer distress,” Andrew Haughwout, an in-house economist, said in the report.
In addition, a recent report in Bloomberg found that the amount of consumer debt that is past due has increased for two quarters in a row. And, with the Federal Reserve lifting interest rates earlier this year, it’s getting more expensive to refinance the debt.
“There are pockets of consumers that are going to be sorely tested,” said Chris Low, chief economist at FTN Financial. “We’ve conditioned American consumers to use debt to close the gap between their wages and their spending. When the Fed hikes [the interest rates], riskier borrowers are going to get pinched first.”
The Federal Reserve Bank of New York report found that the total U.S. indebtedness is about 14 percent above the trough of household deleveraging brought on by the 2007-2009 financial crisis and deep recession, a pullback that interrupted what had been a 63-year upward trend.
Mortgage debt was $8.69 trillion in the second quarter, up $329 billion from last year. In addition, student loan debt was $1.34 trillion, up $85 billion, while auto loan debt came in at $1.19 trillion, up $55 billion.