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Household Debt Remains Low: However, Fed Rate Increases Could Create An Issue

ArmchairPolitiicianHouseholdDebt, May 21, 2017, by Brad Peery, ArmchairPolitician.US, bradpeery007@gmail.com

Household debt, including rapidly growing student loans, has surpassed the peak in 2008Q3, at the beginning of the housing induced recession, and reached $12.73 trillion. Delinquencies are low, and the backdrop bodes well for consumer spending participation in a growing economy.

Mortgage balances totaled $8.63 trillion, 67.8% of total loans, and grew at about a 6.8% annual rate in Q1 2017. There was only a 1.7% 90 day delinquency rate for mortgages. The housing market has been strong, but interest rates are over 4% compared to under 3.5% in the second half of 2016. With Fed rate increases scheduled that could take these rates over 4.5%, mortgage costs could begin to negatively impact the housing market.

Student loans have been widely discussed. They have grown rapidly, and are now at $1.34 trillion, 10.5% of total debt, and grew by about 10.0% annually in Q1 2017. 11.0% of student loans are 90 days overdue or delinquent.

Auto loans were $1.167 billion at the end of Q1 2017, 9.2% of total debt. Auto loan defaults of 90 days or more were 3.8%. The automobile industry has not been doing well recently, with inventories increasing, and sales slowing.

Credit card balances were $764 billion, only about 6% of total loans, and declined by about 7.9% in the first quarter. They do not appear to an economic issue.

ArmchairPolitician.US Opinion: The economy was weak in the first quarter of 2017, with an increase of only 0.7%. However, lower inventories were a big factor in the shortfall, and 2.0% growth for the year appears to be possible. Trump policies are targeting job growth in the U.S. and 3% economic growth, but a recent unemployment rate of 4.4% in April raises questions about where additional job growth will come from. However there are many individuals and students that have stopped looking for work, and the real unemployment rate may be in the range of 8%.

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