Nominal Household Debt and GDP Analysis

The examination is of Nominal Household Debt relative to Nominal GDP. While there have been, and are, several studies in the market regarding leverage, we could analyze the numerator in several possible ways to gain additional insight into the primary ratio/index.

Recent Trends in Household Debt

This morning, I read an article in USA Today about Household Debt becoming notable once again, with the headline stating Americans’ outstanding credit card debt hit a new record. The Federal Reserve announced that revolving credit (mostly credit cards) increased by $11.2 billion to $1.023 trillion, surpassing the previous high of $1.021 trillion reached in April 2008, just before the housing and credit bubbles burst. Over the past year, revolving credit surged by $55.1 billion, or 5.7%, according to the Fed. Non-revolving credit, such as auto and student loans, rose by $16.8 billion to $2.8 trillion in November.

Analysts quoted in the article noted that the new all-time high for credit card debt does not today pose the same risks to the economy that existed in 2008 due to higher incomes. Currently, the ratio of credit card debt to U.S. GDP is about 5%, compared with 6.5% in 2008. However, there remains a possibility of this being an early warning sign of financial stability issues for the broader economy.

Delinquency Rates and Economic Stability

Additionally, credit card delinquencies have increased to about 7.5% from 7% a year ago, highlighting growing stresses. While that’s still below the 15% delinquency rate reached during the financial crisis and the 9% historical average, the increase over the past year is a cause for concern. Despite jobs and income growing, this rise isn’t creating significant problems at present, but it could if the economy and labor market experience a downturn.

Conclusion

In conclusion, the potential for negative outcomes exists. I wait with excited nervousness. There is Risk! Remember, I warned you when the signs of trouble first appeared.