Date
16 July 2019
The overall debt shouldered by Americans edged up to a record US$13.5 trillion in the fourth quarter of 2018. Photo: Bloomberg
The overall debt shouldered by Americans edged up to a record US$13.5 trillion in the fourth quarter of 2018. Photo: Bloomberg

Red flags emerge as Americans’ debt load hits another record

Some red flags emerged for the US economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon.

The US household debt and credit report, published on Tuesday by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record US$13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession.

While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at US$870 billion matched its pre-crisis peak in 2008.

Consumer spending accounts for two-thirds of growth in the world’s largest economy and it is expected to hold strong this year even as the overall expansion cools after a hot 2018.

However, one sign of consumer demand, credit inquiries, slipped in the second half of 2018 to the lowest level recorded by the New York Fed.

Another signal of weaker demand, the closing of credit cards and other accounts, jumped to its highest level since 2010, while flows into serious delinquency for credit cards rose 5 percent, up from 4.8 percent in the third quarter.

Serious-delinquency flows, a warning bell for economists because they can prelude defaults, spiked in the third quarter for student debt and remained there in the fourth quarter, with 9.1 percent of the US$1.5 trillion total debt seriously delinquent.

These flows have also been rising since 2012 for auto loans, which rose slightly to total US$1.3 trillion by the end of 2018, a year that had the highest number of auto loan originations since at least 1999.

New York Fed economists said that while creditworthy borrowers are mostly driving the growth in originations, the performance of auto debt is worsening.

“Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans,” said Joelle Scally, administrator of the New York Fed’s center for microeconomic data.

The Federal Reserve raised rates four times last year but is now taking a wait-and-see approach to further policy tightening in the face of an overseas slowdown, the expected slowdown at home, and muted US inflation.

The report also showed that Americans have continued to turn away from home equity lines of credit, or HELOC, which can free up funds for other purchases. HELOC balances dropped to US$412 billion in the fourth quarter, its lowest level in 14 years.

Job openings hit record

US job openings surged to a record high in December, led by vacancies in the construction and accommodation and food services sectors, strengthening analysts’ views that the economy was running out of workers.

While the release of the Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS, on Tuesday underscored labor market strength, there are worries the shortage of workers could hurt an economic expansion that has lasted 9-1/2 years and is the second longest on record.

“The labor market continues to heat up,” said Chris Rupkey, chief economist at MUFG in New York. “But growth cannot continue for much longer if there is no one out there to work in the factories and shops and malls across America.”

Job openings, a measure of labor demand, increased by 169,000 to a seasonally adjusted 7.3 million in December, the highest reading since the series started in 2000. That lifted the job openings rate to 4.7 percent from 4.6 percent in November.

Construction vacancies increased by 88,000 jobs in December. There were an additional 84,000 jobs in the accommodation and food services sector. Job openings in the healthcare and social assistance sector rose by 79,000 in December.

Federal government vacancies, however, fell by 32,000 jobs and job openings in real estate, rental and leasing dropped 31,000 in December.

Hiring continued to lag job openings in December, rising to 5.9 million from 5.8 million in November. That further widened the gap between vacancies and hiring, which emerged in 2015, reflecting tightening labor market conditions. There were 1.2 job openings for every unemployed person in December.

Layoffs fell in December, pushing the layoffs rate down to 1.1 percent from 1.2 percent in November. Reuters

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CG

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