Recap & Outlook: US Household Debt

Michael Rudd, CFA | President, CEO and Portfolio Manager

There has been more volatility in financial markets related to the ongoing trade tensions between the United States and China. We view this as a temporary issue that is based more on negotiating tactics than actual long-term negative change in the relationship between these two nations. Most geo-political observers believe that trade should be more balanced and that there should be some better protection for intellectual property. These are the world’s two largest economies and they need each other’s cooperation.

We mention the above because it is topical but in reality, we continue to focus on our individual research on the real economy. This week, we noticed a number of reports with respect to US household debt levels. We have written before about the levels of government debt which, in our opinion, continues to be manageable. Private sector debt, however, is a situation that can change dramatically over time and should be monitored. When consumers take on two much debt, spending at the margin can slow as they work to pay the debt off. This is what ultimately can drive the economic cycle lower.

  • As you can see from Figure 1, total debt has grown to US$13.7 trillion with mortgages and student loans crossing peaks last set in 2008. We also note that auto loans and credit card debt “Serious Delinquency Rates” (i.e. 90+ days) have trended up consistently since 2016.
  • Figure 2 presents the number of credit card and loan accounts from 2003 through March of this year. As you can see, after a big dip in 2008/09 they have rebounded to prior levels.

“This means that” we will spend more time researching the current debt environment in general (and not just in the United States). We want to determine if debt for various sectors (i.e. personal, corporate and public) continues to be manageable.

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