IN THIS ISSUE:

1. Household Debt Hit a New Record High in the 3Q

2. Student Loan Delinquencies Spike to 9.1% in 3Q

3. Another Government Shutdown Looms in December

Overview

The total debt shouldered by American households hit another record high, rising to $13.5 trillion in the third quarter. It was the largest quarterly jump since 2016. Meanwhile, the percentage of student loans in delinquency unexpectedly jumped to 9.1% in the third quarter, the highest level since the end of the Great Recession.

Following those discussions, we’ll look at the likelihood of a government shutdown on December 8. Government funding is set to expire on December 7, and President Trump is adamant that if he doesn’t get federal funding for at least part of his border wall, he would be fine if the government shuts down. Democrats, of course, and even some Republicans, refuse to fund the wall.

This fight will be different from past shutdown showdowns since much of the government is already funded through next fall via deals made last summer. The main difference this time is we have a president who says that a government shutdown just might be a good thing. That’s troublesome.

Household Debt Hit a New Record High in the 3Q

Outstanding household debt owed by American families jumped to a new record high of $13.5 trillion in the 3Q, the Federal Reserve reported last week. At that level, household debt is now $837 billion higher than its previous peak reached in 2008 before the Great Recession fully unfolded.

Total Debt Balance

In the June through September quarter, US household debt soared by a more than expected $219 billion. It was the 17th consecutive quarterly increase in household debt. It surpassed the previous record of $12.7 trillion set in 2008.

Mortgage balances --the largest component of household debt -- grew by $141 billion during the 3Q, to $9.14 trillion. Credit card debt rose by $15 billion to $844 billion; auto loan debt increased by $27 billion in the quarter to $1.27 trillion; and student loan debt hit a record high of $1.44 trillion, an increase of $37 billion in the 3Q.

Some 4.7% percent of outstanding household debt was in some stage of delinquency in the 3Q, up from 4.5% previously. This was primarily due to a large increase in rising delinquencies on student loan payments (more on that below), according to the Fed.

Separate data from the New York Fed showed that borrowers aged 30 to 39 years and those 50 and older drove the jump in delinquencies last quarter, a measure economists use to gauge market stress and the likelihood of defaults.

All of the household debt numbers above are bad, of course. With debt at these huge levels, it won’t take much of a negative surprise to spook consumers, most of whom know they have way too much debt. Remember, consumer spending makes up almost 70% of GDP.

The NY Fed also released data last week that looks at household debt from a different perspective, which is worth noting. In addition to reporting the total outstanding household debt, as shown in the chart above, the Fed also shows the debt as a percentage of total disposable personal income.

From that perspective, the numbers don’t look quite as grim. The ratio of total household debt to total disposable personal income was 86.5% at the end of the 3Q versus 86.0% in the 2Q. You can see what that looks like in this chart:

Household Indebtedness

By this measure, household debt is not at a new record high and is still well below the peak in 2008. Yet while household debt may not be quite as high as what families may be making in terms of disposable income, it’s still $13.5 trillion of debt that must be repaid (or defaulted on) at some point. Even from this perspective, it is still very troubling.