Consumer Debt Stops Declining After Nine Consecutive Quarters [CHARTS]

This post has been updated.

By at least a few measures, U.S. consumers are doing slightly better these days.

That's according to a new report by the Federal Reserve Bank of New York which looks at "consumer debt levels, delinquency rates, foreclosures and bankruptcies."

What the report found, according to an accompanying blog post by authors Andrew Haughwout, Donghoon Lee and Wilbert van der Klaauw, was small, yet significant "signs of healing" among U.S. consumers.

Total levels of consumer debt "held essentially steady" in the first months of the years, after declining for the previous nine quarters, spanning over 27 months. Total consumer debt -- including mortgages, credit cards and student loans -- is now down by 8.2 percent from its peak in the third quarter of 2008.

The percentage of consumer debt that is seriously delinquent, or unpaid for ninety days or more, is down by 15 percent from a year ago, however.

Consumer debt is now a regular part of U.S. life, but it wasn't always that way. Not until the mid-2000s did total consumer debt pass the $10 trillion mark. And today, Americans forced to choose between making mortgage payments or credit card payments more often choose the latter.

The below graph charts total U.S. debt by type of loan:

Aggregate credit cards limits have risen in the first months of the year, ending a decline first beginning in mid-2008, according to the NY Fed. And while the number of open credit cards remained roughly steady in the last three months, the total number of open credit cards is 24 percent lower than its 2008 peak. The balances on those cards also are nearly 20 percent below levels reached at the end of 2008.

The below graph illustrates the declining number of open credit card accounts:

New foreclosures have also fallen nationally, according to the report, a significant finding for a struggling housing market. Only around 368,000 foreclosure notations were added to credit reports since the end of 2010, down almost 18 percent from just the previous quarter.

Household delinquency rates have now fallen for five consecutive quarters, and household mortgage indebtedness is now 8.1 percent below its peak. High-foreclosure areas like Arizona, California and Nevada are also now watching their foreclosure rates fall faster than many other areas of the country.

Bankruptcies noted on credit reports fell 13 percent since the end of last year, to 434,000 from 500,00.

Update: A previous version of this post mistakenly attributed the phrase "signs of healing" to the NY Fed. The phrase came from the authors of the NY Fed study.

Comments

[Peanut Santiago]

01:57 AM on 05/11/2011

My bet?

With rising prices in necessities like food and fuel.....and so many people unemployed and underemployed.....more people are using their credit cards just to survive.

And many of these people won't be able to pay the bills and will default.

Many people can't pay their mortgages.....AND others will do a strategic default just to get out from under crushing debt on a house worth much less than they owe.

The Banks and Wall Street were greedy, selfish, crazy risk takers....and the common people see NO reason not to use credit AND eventually default if they can't (or don't want to) pay.

What goes around comes around.

*****Too bad some of us live within our means, have little or no debt, and are also caught up in the consequences of all this bad behavior.

[OnlineMike]

12:48 PM on 05/11/2011

For a waive of irresponsible credit card use to make a come back anytime soon you would need confidence in the economy, something that we don't have right now. I doubt that common people will engage in irresponsible credit card debt to the same levels that we saw in 2004 and 2005 that landed so many people in trouble in 2007 and 2008, the same with new home buyers and those who managed to continue to pay their mortgage. The feeling that everything is well that was in the air around 2003-2004 was one of the main things that contributed to this behavior, coupled with the lack of regulations that existed during those years, but with credit card rates averaging 15%, more disclosure, more restrictions, a slow recovery and all the fear and uncertainly that's in the air, I don't think that there will be a significant number of people engaging in the practices that you described.

[Kenz300]

08:44 PM on 05/10/2011

Individuals, states and the federal government all are learning what it means to live within a budget.

We are all struggling to make it work. Too bad they did not do a better job of teaching life skills in school. Kids in school should learn more about applying for a job, preparing a resume, interview skills, doing a family budget, balancing a check book, dealing with credit cards, the cost of home ownership, family expenses and children, college costs, student loans and saving for retirement. We do not prepare our children with the basics they need to deal with these issues.

[Peanut Santiago]

01:59 AM on 05/11/2011

From where I sit, they are not learning.

They are living on debt and passing the buck AND hoping it will all get better.

This is more a problem of greed and selfishness and stupidity than lack of life skills.
***Though some people do need to learn.

The politicians knew better....but thought the sky would fall on somebody else's watch.

[ASHology]

05:21 PM on 05/10/2011

So wait... the fact that Americans are placing themselves in more debt, continuing to live above their means is a good thing? Isn't the fact that our economic progress was and continues to be built on massive debt is just one of the biggest frauds ever? Isn't it what creates bubbles only to burst in our face and then we're stuck with a lot gum in our hair? The only way we can save ourselves is if we dig out of the grave that is our debt; household debt and government debt. We have to stop pretending and "lalala'ing" all the way off the cliff!

[usma84]

04:16 AM on 05/11/2011

"So wait... the fact that Americans are placing themselves in more debt, continuing to live above their means is a good thing?" - the numbers and charts above show the opposite

" Isn't the fact that our economic progress was and continues to be built on massive debt is just one of the biggest frauds ever?" - buy a house on a 30 year mortgage, pay it off and own a property that has consistently been worth more at the end of 30 years than what you paid for it - no, that's not a fraud at all.

" Isn't it what creates bubbles only to burst in our face and then we're stuck with a lot gum in our hair?" - no, it is not, you need to go study the various bubbles throughout history. For instance, the dotcom bubble wasn't built on debt, it was built on speculation and analysts pumping stocks to investors even as their parent firms knew that the analysis was false.

But if you stuck to investing fundamentals ala Graham, Buffet, Lynch etc, you didn't get soaked.

" The only way we can save ourselves is if we dig out of the grave that is our debt;" - increasing wages and salaries through GDP growth and an expanding economy is how Americans have dug "out of the grave that is our debt" throughout our history.

Before typing exlams and freaking out, it "pays" to learn some history, economics and basic finance and investing.

[ASHology]

10:58 AM on 05/11/2011

History does show that some of our bubbles have been fueled by debt - the Stock Market Crash of 1929 was because many people were buying stock on the margin. And I do believe the housing market was a bubble fueled by debt because of ridiculously easy credit. The chart only shows what the amount of consumer debt we are holding and so my comment was a general statement about our culture not the chart. As far as what a house is worth 30 years from the day you bought it, though that may be true in real numbers but when you consider inflation during that 30 year period, I'm sure it's not that much, especially when you brought your house in an over-inflated market. I would agree with you on the speculation bubbles which have cause hyper-inflation certain sectors only to have the bottom fall out. That is, I believe, actually happening with oil and food along with higher population and increased incomes across the globe. It is my perspective that we need to get our fiscal house in order by decreasing our debt, keep the value of the dollar and not pump so much money into the system so that we can try to control inflation. It's all a matter of how you review the stats and what your personal bias is, as you may or may not realize stats can be very misleading. BTW... not freaking out... was just being sarcastic/silly :)

[mggwa]

03:06 PM on 05/11/2011

"So wait..."

waiting....

[JamesJerico]

04:32 PM on 05/10/2011

If ever there was a time to bring forth consumption taxes this would be it. We need to consider reducing income/corporate taxes and replacing that revenue with a VAT on non-essential goods like groceries. Almost every country in the world has a VAT while we live in this fantasy land thinking we can consume our way into economic growth. The reality is that consumption without savings and production to back it up will only lead to debt and economic malaise.

[Greg Logan]

04:50 PM on 05/10/2011

Does a consumption tax tend to encourage or discourage consumption?? What drives the economy - wealth - or demand (consumption)?

[mggwa]

03:07 PM on 05/11/2011

"Almost every country in the world..."

is not the United States. I don't WANT for the United States to be just another socialist European nation.

[INDIVIDUALTERRY]

04:27 PM on 05/10/2011

DAVE RAMSEY IS RIGHT !

[KDMac]

08:23 AM on 05/11/2011

Dave Ramsey who once filed for bankruptcy.

[INDIVIDUALTERRY]

08:48 AM on 05/11/2011

Yea Mac , thats how you learn , you make mistakes.
Smart people don't repeat them and thats how he teaches.

[DebtNavigation]

02:17 PM on 05/10/2011

That new debt is basically down to federally guaranteed student loans (a new bubble--college doesn't pay for itself anymore), and the government backed consumer loans for the heaviliy-subsidized auto industry. These are just starting to outweigh the credit card chargeoffs (when cards are fully defaulted at 180 days, that counts as LESS consumer debt). We are a long, long way from being out of the woods.

If you've been pushed under, you can read every other page of my book for free: http://www.scribd.com/doc/25443175/Debt-Hope-Down-and-Dirty-Survival-Strategies-Evaluation-Version-Complete

[StopMakingSense2]

01:51 PM on 05/10/2011

Zero and holding for me! A bankers nightmare!

[firecracker0311]

02:06 PM on 05/10/2011

Me too!!! Ain't no way I'm going back to being in debt!!!! What a nightmare to get out of!!!

[DebtNavigation]

02:12 PM on 05/10/2011

Their nightmare is someone who runs up the cards and doesn't pay. You're just a marketing challenge.

[firecracker0311]

02:22 PM on 05/10/2011

Very true, but they are wasting their money on me. LOL.

[econ1]

01:34 PM on 05/10/2011

I am not sure that increasing consumer debt is a good thing. Sometime the US will need to be a saving and investing nation rather than a spending and borrowing one.

[CPA 4 Life]

02:01 PM on 05/10/2011

"I am not sure that increasing consumer debt is a good thing."

Easy, compare the ROI to the interest rate.

[mggwa]

03:10 PM on 05/11/2011

the "money supply" is largely debt. Debt can be traded as a security and is to a large extent the oil of the engine of modern American economics.

If every American paid off his or her debts, the economy would probably lock up and freeze tight.

[ringo3khan]

01:04 PM on 05/10/2011

The truth be told the age of the Consumption based economy is coming to an end. With ever increasing energy prices, falling wages, fewer jobs (all on an inflation adjusted basis) and the new burdens of exploding health care costs caused by Obamacare, there won't be much left over for mass consumption of non-durables. (or durables, for that matter). And the era of easy credit will be coming to an end as well. The sooner Americans adjust their expectations lower and grasp the fact that they should expect that they'll have to adjust their expectations lower each year going forward, the better off they'll be because when they do, they'll realize that taking on consumer debt is like commiting economic suicide. Overall, Americans need to stop spending and stop spending now!

[SlinkyTWF]

02:12 PM on 05/10/2011

The exploding health care costs were not caused by the Affordable Care Act. They have been taking place for decades prior to it.

[JWerner]

07:02 PM on 05/10/2011

But, but. . .that means knowing something about History! That's LIBERAL stuff, we can't be having any of that!!

[katooom]

08:46 PM on 05/10/2011

No, I have bought my own insurance for years. The last year has been worse than normal.

[Deftguy]

02:32 PM on 05/10/2011

Ringo, back off the cool-aid. Health care reform will slow down cost increases, and actually save the country some change. Leaving this as they are will surely bankrupt you and this country.

Save the hyperbole for story time.

[she343]

09:44 PM on 05/10/2011

Sorry! don't know what happened! What I tried to say:
so your health insurance and medical costs were cheap before Obama?

[Bushido08]

12:53 PM on 05/10/2011

Credit cards have turned into the biggest rip off ever. If you can live without them, cut 'em up and send them back to the crooks that sent them to you. I sure wish there was something like the "do not call list" to sign up for "don't send me anymore credit card letters stating I've been pre-approved"....save the ink, paper and stamps and stuff them where the sun doesn't shine.

[KDMac]

12:57 PM on 05/10/2011

They're not a rip off if you're responsible in your usage. Some of us don't charge more than we can afford and pay them off every month.

[econ1]

01:32 PM on 05/10/2011

Almost anything can be misused with the associated consequences. As you point out, if one doesn't spend more than one can pay off each month....then credit cards are a convenient financial tool.

[edejan]

01:39 PM on 05/10/2011

They are created to be a rip off. If you consistently pay off your monthly debt, your value as a customer declines and you are punished in some way....less access to credit, slower credit line increases, lower "creditworthiness," etc.

[she343]

09:54 PM on 05/10/2011

got my first store card in the 70s (limit $200.00)--then Visa/ MC came along.......interest rate was reasonable and you had to qualify for amount you were allowed to put on card.......then the greed is good folks took over and everyone listened to experts who told you the "smart" way to use credit.....this nonsense is not the way it has always been - it is not capitalism-- it is fraud and usury (they just changed the laws to allow this behavior to happen)

[izzat7]

12:32 PM on 05/10/2011

People aren't going to get burnt twice. We finally woke up and are not spending on non essencials.

[Vincent Van Der Hyde]

12:58 PM on 05/10/2011

Don't bet on that. The rise in consumer debt is likely almost all credit card. We'll know in another few months what the trend is.

[Andman0121]

12:31 PM on 05/10/2011

Sooo why is this a bad thing?

[Vincent Van Der Hyde]

12:46 PM on 05/10/2011

EXACTLY!
Why in the world would anyone think INCREASING consumer DEBT would be GOOD?

[Bushido08]

12:53 PM on 05/10/2011

It's only bad if you are in the credit card business.

[Vincent Van Der Hyde]

12:59 PM on 05/10/2011

I should think a RISE in debt to credit card companies would be seen by them as good, not bad.....they make more money that way .

[GCurry]

12:16 PM on 05/10/2011

The reason consumer debt has stopped declining is that at first, when the recession got everyone's attention, they stopped buying on credit and used the little bit of household discretionary income to pay down usurious consumer credit.

Now, the economy has gotten worse, and there IS no more household discretionary income. Just the opposite, extended family is collapsing in on that part of family still employed which can provide shelter. Except the equation doesn't quite work, so people in greater numbers are using consumer credit to survive.

Don't believe anything they tell you about a "recovery". There are compelling fundamental reasons why this economic crisis will get worse and worse. It won't get better in the forseeable future.

[ruburnt]

12:46 PM on 05/10/2011

Yup....I believe we are going to need a new president before things start to get better.....
http://blogs.forbes.com/peterferrara/2011/05/05/reaganomics-vs-obamanomics-facts-and-figures/

[GCurry]

12:50 PM on 05/10/2011

A new President will not solve the problem. Reaganomics is a stupid joke. And "Obamanomics" tries to make everyone happy. The problem is that now, in this country, it is impossible to elect a President who is of, by and for the people. Sorry, Abe.

[Vincent Van Der Hyde]

12:47 PM on 05/10/2011

If you are right, and you may well be right, then at the least we are headed for a 'double dip' recession; maybe worse.

[GCurry]

12:51 PM on 05/10/2011

We are headed for neo-feudalism, which is like the Great Depression, except permanent until the people are angry enough.

[nothingchanges]

11:53 AM on 05/10/2011

The chart for consumer debt going back to 1920 is much more informative (IMPO)

http://dailybail.com/home/chart-shock-consumer-debt-to-gdp-ugly-would-be-an-understate.html

If history repeats itself, things could get very interesting.

[Vincent Van Der Hyde]

12:49 PM on 05/10/2011

I'd be very careful about reading much into that chart.
Remember that there was no 'credit card' debt at that time, nor 'school loan' debt. It may be entirely a function of failed house mortages and repossessions.

[thestargazer]

11:51 AM on 05/10/2011

That chart looks like a tsunami and where (the USA) is just on the other side of the graph, about to feel its full force?