NY FED: CONSUMER DE-LEVERAGING CONTINUED IN Q1 2012
While Europe steals the spotlight on the problems in the global economy, the US economy continues to muddle through its consumer credit recession. The latest Household Debt and Credit Report from the NY Fed shows continued signs of de-leveraging.
“Aggregate consumer debt fell slightly in the first quarter. As of March 31, 2012, total consumer indebtedness was $11.44 trillion, a reduction of $100 billion (0.9%) from its December 31, 2011 level. Mortgage balances shown on consumer credit reports fell again ($81 billion or 1.0%) during the quarter; home equity lines of credit (HELOC) balances fell by $15 billion (2.4%). Household mortgage and HELOC indebtedness are now 11.9% and 14.3%, respectively, below their peaks. Consumer indebtedness excluding mortgage and HELOC balances stood at $2.64 trillion at the close of the quarter. Student loan indebtedness, the largest component of household debt other than mortgages, rose 3.4% in the quarter, to $904 billion.”
The vast majority of the decline came from mortgage related debt, which, not surprisingly makes up the biggest piece of the consumer debt pie. As Robert Shiller noted in this most recent interview, the problem with real estate is not that houses aren’t affordable, but that people simply don’t have the demand for the extra debt. This is clear proof that he’s right. I still see the effects of the credit recession tapering off into 2013, but it’s clear that the problems are still impacting the US economy today.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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7 Comments
Their have been 9 times since 1967 the Chicago PMI Declines by 15 points from a high.
Of those 7 occured during or just prior to the NBER-defined recessions with only two false signals(84 and 95). So the question to ask is are we at the beginning of a great bull market(84) or in the tail ends of the blow off(95)?
The answer to that should determine how you structure your investments in the absence of the FED doing what they do.(still not sure what they do)
The forward SPX returns from here are mostly negative but 1 year out positive. It all depends on what enviornment this is. Is this 82-2000 or 1974 and or the final leg of the bear?
If you think were in a bull market then this is your buying opportunity. Load em up Bulls.
Lots of weak data this morning. I wonder if we’re not on the verge of another recession. Maybe ECRI was not far off?
I’d be curious to see that data:
* over a longer time span
* adjusted for inflation?
* as a percentage of real income
As is, it’s hard for me to put in to perspective in order to answer the question, “what does that debt need to get to in order to be ‘healthy?’”
+1. Couldn’t agree more.
http://pragcap.com/why-the-balance-sheet-recession-will-not-last-as-long-as-japans
This post by Cullen has a graph that charts household debt/disposable income (not adjusted for inflation) all the way back to 1959.
My back of the envelope calculation (not inflation adjusted) has the ratio down to 96% as of the first quarter. The highest I calculated it was in the 2nd quarter of 08 at 124%.
To put some perspective on how high this ratio could be, our friends to the north in Canada have a household debt/income ratio of 150%.
I think it is basically impossible to predict what level Americans will start to lever back up, but I keep trying….
Look at 03Q1 and there’s your answer……….
The “Roving Cavaliers of Credit” article has the debt data over a long time span:
http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/