E Booming Economy, Low Interest Rates Have Contributed To Escalation In US Household Debt

The American economy has been generating relatively strong growth in a near fully employed environment. Bank credit expansion has also been quite solid and has supported strong consumer spending.

While a solid pace of credit growth coupled with a hot US labor market continues to bode well for consumer spending, the reality is that strong growth has also been accompanied by soaring household debt.

And as the National Bank’s Hot Chart illustrates (May 15, 2019) “the U.S. credit expansion is happening despite relatively tight lending standards which have led to more than half of mortgage originations and a third of auto loan originations going to the highest-rated borrowers. That explains in part why delinquencies remain low despite the credit surge. “

Fortunately, household debt as a percent of GDP has been on a clear downward trend since the end of the Great Recession in 2009.

The household debt ratio reached an all-time high of 98.6% of GDP in the first quarter of 2008 and has in fact been declining ever since. Household debt in the US as a % of GDP was only 76.4% in the third quarter of last year.

Nonetheless, the total amount of American household debt is still very high, exceeding $3.5 trillion. The financing of this debt can be managed assuming we don’t encounter a similar kind of financial meltdown such as the one experienced in 2008-09. 

US Household Debt As % Of GDP

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