Here is some good news in disguise. The Federal Reserve Bank of New York reported this week that “U.S. household debt rose in the latest quarter by the most in more than five years.”
Why is it good news and why is it in disguise? Well, as the readers of this column know, debt accumulation for private households is usually something that needs to be watched carefully. One, certainly, wouldn’t want households to go back to their spendthrift ways.
Using perceived increases in the value of one’s house as an alternate ATM comes to mind.
However, given that the anemic state of the economy has a lot to do with consumers’ hesitation to purchase big-ticket items, certain kinds of new debt would be a hopeful signal.
The “Quarterly Report on Household Debt and Credit” (available at: http://goo.gl/Ts4uBN) had several such positive signs. Most of all, it showed that the proportion of delinquent balance existing for more than 90 days declined to 5.3 for all household debt.
That is the lowest such number since the third quarter of 2008. Moreover, the increase in household balances occurred across all types of debt, indicating that a considerable number of households have decided it is time for some big-ticket purchases.
Auto loan balances and related credit inquiries increased for the 10th straight quarter (good news for car manufacturers and car dealerships).
New mortgages balances accounted for $549 billion in additional debt, continuing their steady increase (good news for building companies), while mortgage delinquency rates continue to decline compared to last year. Balances on home equity lines keep dropping (no more ATM mania). Credit card balances increased by $4 billion.
The data does not parse out why this happened, but the hope is that households have started replacing expensive items, such as dishwashers or washing machines, which had not been purchased due to ongoing economic uncertainty.
The one somewhat worrying sign in the report related to student loans, namely a record share of such loans being behind by more than 90 days (11.8 percent). Given that student loans cannot be cleared through bankruptcy, problems in repaying this debt often portend difficulties in other economic activities (such as buying a house or securing credit for purchasing a car) for, mostly, relatively young families.
Combining the news on debt with data from “Gallup’s Economic Confidence Index” and the latest job numbers provides added reason for optimism.
According to the latest Gallup numbers (available here: http://goo.gl/uCFR1T), this measure is continuing its slow but steady increase since the government shutdown in October. Asked to rate economic conditions, as well as whether they think economic conditions will improve, an ever larger share of respondents answer in the affirmative.
And, as has been widely reported, last week’s job numbers (posted here: http://goo.gl/dke5hM) significantly exceeded expectations by most economists. While there is some doubt whether the shutdown had impacted the count in unpredictable ways, it was still welcome news.
Therefore, before the marathon holiday season(s) and the accompanying shopping sprees, the economy is primed to get a bump from added consumer confidence and the increased consumer willingness to spend.
That may just be what the economy needs, despite the best efforts by elected officials to torpedo it with fiscal games of chicken, to gather some steam.
That would be really, undisguised good news.
Dr. Michael Reksulak has taught economics and public finance in Georgia Southern University’s College of Business Administration. He can be contacted at MReksulak.SMN@gmail.com.