American household debt has reached a new all-time high after rising by $197 billion in Q3 to $18.59 trillion. American consumers, the breadbasket of the national economy, are overleveraged. The economy is less likely to absorb shocks from trade disruptions or shifting interest rates.
Two-thirds of US GDP is based on consumer spending. Trade was bountiful in this consumer economy as other nations lined up to sell to the American consumers. Manufacturing was once a strong point, but it has since flattened, now in an eight-month consecutive contraction. Government, institutions, businesses, and now the consumer are drowning in debt—confidence in the future has vanished.
The situation is dire, multiplying in scope since the pandemic. Overall debt has spiked $4.4 trillion since the end of 2019. Mortgage balances have reached $13.07 trillion, up $137 billion from last quarter. People are holding onto their pandemic-era mortgage rates for dear life. The over-asking price bidding wars are over as real estate is firmly in a buyers’ market. The younger generation cannot enter the housing market.
Student loan debt is now calculated in overall household debt. Millions believed the last administration’s promise that their debt would be forgiven. Student loan debt reached a record high of $1.65 trillion, rising $15 billion from last quarter. Nearly 10% of all student debt has been reported as 90 days delinquent.
Credit card balances went up $24 billion in Q3 to $1.23 trillion. Interest and principal may be flowing from households to banks and financial institutions, for now, but the softening labor market indicates that delinquencies will continue to rise.
Debt servicing costs will rise as lenders aim to offset any additional losses. Consumer spending has been steady broadly speaking but consumers are spending more on less. With the U.S. consumer heavily leveraged, the capacity to absorb shocks from trade disruptions, rising interest rates, or global capital shifts is reduced. If the American consumer hurts, the entire economy feels the pain.