Americans’ Debt is Growing — But So Are Incomes

Americans are continuing to pile on debt at record levels. However, according to new data released by the Federal Reserve Bank of New York, many households are finding these obligations entirely manageable. As of September 30, total US household debt swelled to a staggering $17.94 trillion, marking a new record. This figure, which is not adjusted for inflation, reflects a comprehensive increase across all major debt categories, with notable gains in areas such as credit cards and auto loans.

Rising Debt and Household Income

Despite the increasing debt levels, households have managed to keep their heads above water, primarily due to rising after-tax incomes. In the third quarter, disposable personal income reached $21.8 trillion. This brings the total debt to income ratio down to 82%, a notable improvement from 86% in 2019, and significantly lower than the alarming 120% recorded during the height of the Great Recession in 2008.

Variability in Debt Experiences

However, the debt experience varies widely among households. While debt levels are rising, the New York Fed’s report indicates that delinquency rates are also on the rise, albeit at a moderated pace. Donghoon Lee, an economic research adviser at the New York Fed, described this trend as “cautiously positive news,” but also noted that elevated delinquency rates signify ongoing stress for many households. “Still, elevated delinquency rates reveal stress for many households, even amid some moderation in delinquency trends this quarter,” Lee said in a statement.

Drivers of Increased Debt

Several factors have contributed to the increase in debt levels. These include population growth, the rise of online spending habits, soaring costs of new and used vehicles, decades-high inflation, and strong consumer activity that has powered the economy. Despite facing the dual pressures of high inflation and elevated interest rates, consumer spending has remained resilient. A strong job market, characterized by the US being in its third-longest labor market expansion on record, has fueled wage growth. According to data from the Bureau of Labor Statistics, wage growth has exceeded inflation for 18 consecutive months.

Post-Inflation Recovery

Nevertheless, the road to financial recovery has not been smooth for all Americans. Many individuals are still recovering from a significant inflation surge that occurred earlier, during which wage gains lagged behind inflation for an extended 25-month period. The aftermath of this inflationary period has left a lingering impact, with many Americans feeling the pressures of debt even as their incomes begin to rise.

Conclusion

In summary, while rising debt levels among American households might raise eyebrows, the overall economic landscape suggests that many families are in a position to manage their financial obligations effectively. The interplay between escalating debt and growing incomes paints a complex picture of the current economic environment. As consumer behavior adapts to ongoing economic changes, monitoring both individual debt experiences and broader economic indicators will be essential for understanding the long-term repercussions of this trend.

For more insights into household debt and economic trends, visit the Federal Reserve Bank of New York.