The economy of the United States is the wonder of the world. Growth is a perennial favorite, banishing all who expect anything less to the margins of pessimism’s dungeons. Ours, dear readers, is an era of economic resilience. The reason, as always, is that our hero, Joe Sixpack, is willing to spend till he’s red in the face (and on his balance sheet). Representing some 70% of the nation’s GDP, Joe and his counterparts are collectively the engine that defines and drives American economic muscle.
Joe’s inclination to keep spending these days, in turn, is powered by an inclination to keep borrowing, which corporate America has seen fit to make progressively easier over time without regards to creed, color or credit quality. The Federal Reserve this month put a new number on the extent of Joe’s readiness to engage in the most popular of American financial transactions: spending someone else’s money. In the first quarter of this year, the growth of household nonfinancial debt jumped by 11.6%, on a seasonally adjusted annualized basis, according to the Fed’s Flow of Funds report. That’s near the fastest pace of recent years, and well above the 6%-to-10% range of increase that prevailed during the latter half of the 1990s, a stretch that was no stranger to robust economic growth.
The Federal Reserve conveniently breaks down Joe’s fondness for red ink into two main categories: home mortgage and consumer credit. As the chart below reveals, ’tis the home mortgage category that’s doing the heavy lifting in elevating household debt to levels that worries some but otherwise encourages others.
