click for ginormous graphic
Source: WSJ

I love this giant graphic from this morning’s WSJ — it gives us the 30,000 foot view of consumer debt here in the USA.

Despite low rates — or is it because of them? — American consumers have seen their debt loads fall to the lowest levels in 6 years. Now they are starting to open those wallets up again, and spend.

But is this a general improvement or a specific response to unique circumstances? While many mortgages and home equity loans have been refinanced at ultra low rates, is that giving consumer space to shop?

For example, Automobile loans have ticked up $20 billion in Q2 — but the US auto fleet is the oldest its ever been. Perhaps consumers are expecting higher interest rates, and are making belated car purchases. (Outside of autos, however, consumer debt fell $78 billion).


We cannot yet tell if this is part of a broader trend, or if it is a series of specific modest improvements. Note that the Great Depression created an entire generation of debt averse savers.

I wonder what the Lesser Depression has done to Consumers’ collective psyches . . .


UPDATE: August 15, 2013 8:30am
Wal-Mart (WMT) quarterly earnings are out — and they disappoint. Sales are $116.2B, weaker than $118.09B estimates; the company cuts fiscal year estimates. Traffic at Wal-Mart is now down 2 quarters in a row. Though Q2 profit rose 1.3%, to $4.07 billion ($1.24 per share), that was a penny shy of estimates. Net sales rose 2.4% to $116.2 billion. Revenue at stores open at least a year at Wal-Mart’s namesake business fell 0.3 percent. That’s considered an important measure of a retailer’s performance.

Is the consumer trading down? Or is the low end consumer broke?


Confident Consumers Step Up Their Borrowing
WSJ, August 14, 2013

Category: Consumer Spending, Credit, Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “The Deleveraging American Consumer?”

  1. stonedwino says:

    The deleveraging by Americans is nowhere near over. It took us several decades to get to these debt levels and it will take us a few more years to get to where we should be. Good jobs are hard to come by; wages have gone nowhere; consumers have paid a dear price for carrying a big debt load and we’ve all said no thanks after this last downturn. Most people I know are continuing to deleverage, living on less and making do. I still see deflation everywhere except for health-care, taxes, insurance, food and energy.

    New car? How about certified pre-owned? New computer? nah…Ebay has killer deals. On top of that, the barter economy is working its magic…I wonder how big that grey economy really is, with so may folks having a hard time making ends meet?

    • mllange says:

      “I still see deflation everywhere except for health-care, taxes, insurance, food and energy.”
      This list you just provided entails well over half of the monthly expenditures for lower income individuals, and it is absolutely devastating. Tack on housing and they are tapped out, (watching rent prices in most markets lately? Where’s the deflation in rent prices?)

      The lower income consumer no longer exists, they’ve become lower income survivors. As an after-hours, part-time volunteer working with elderly and low income individuals it is obvious that many are losing hope that they will ever get out of survival mode. The idea of prosperity is not even on their radar.

      • S Brennan says:

        Agree: This the inevitable result of implementing Milton Friedman’s recommendations…which can be boiled down to “selfishness builds better societies”. Unfortunately, Americans didn’t know enough of their history to know that this path leads to societital collapse 100% of the time it has been implemented.

        I can not be said too often, Milton Friedman complained of the “government trough” for needy individuals, while he himself engorged himself on public monies. Besides his satanic worship of greed, Milton Friedman was the consummate hypocrite. When we imagine evil we picture Hitler, Mussolini and Stalin, but I think we need to recognize that characters like Friedman belong in that pantheon…if on a much lower pedestal.

        Milton Friedman was a man who lacked the gumption to strike for power and chose instead to aid those would eventually overturn democracy, not only in the USA, but worldwide. Like Marx, Milton Friedman laid out a utopian vision that would be implemented…and end in disaster. In fairness to Marx, Friedman’s history wasn’t as accurate, as his monatary conjecture of past events has been recently shown to be untrue, then too Marx had no part in the cruelties of his philosophies implementation, wheras Friedman reveled in the inhuman treatment his policies meted out.

  2. stonedwino says:

    “Note that the Great Depression created an entire generation of debt averse savers.” I think this time it’s worse, since so many more people had loads of debt going into downturn, compared to 1929….way more people totally averse to banks and debt.

  3. Bob K. says:

    At my current rate and time in my home I am applying 1/3 of my mortgage as principal. These ultra low mortgages are going to drastically reduce debt loads in the future just through the amortization schedule.

    • BuildingCom says:

      It’s good you’re delevering from the mortgage debt but that house still represents a huge loss.

  4. WickedGreen says:

    I look at those charts and see … less debt than a few years ago, and/but nevertheless more debt than a few years before that.

    The history therein only goes back to ’03 in the longest of examples, but we all know what a further look back would show.

    Less horrible? That’s what zero rates/massive Fed intervention has (cough) bought us?

    Color me less than bowled over.

  5. BuildingCom says:

    Has any deleveraging actually occurred or is it simple a result of creditors writing off bad debt? I believe it’s the latter.

    Tens of millions dramatically overpaid for a house back in the first decade and millions more recently made the same error. Each one of those unfortunate people set up a deleveraging event lasting 30 years. It’s was a big vacuum and now their is a void with nothing but air underneath housing with decades of deleveraging the only thing in sight.

  6. rww says:

    Confidence is one side of the coin. Cashlessness is the other.

  7. scottinnj says:

    It seems that borrowing is mostly by the younger demographic e.g by that first suit for work, the first car the first home. With this younger generation having fewer jobs less income and higher student loan debt it isn’t that surprising that younger consumers are borrowing less. Plus I think a lot of boomers are realizing that paying down debt is the best return…paying off my 4.5% mortgage is a much better return that 2.7% 10 yr treasury. I also think there is a shift from own to renting e.g. See the success of Zipcar.While this isn’t helping retail today (see Macy’s and Walmart earnings) this is really a long term positive is we are becoming more prudent in borrowing. Of course Econ 101 would suggest the government fill the gap but that is another argument.

  8. ByteMe says:

    Still too much mortgage debt… too many mortgages are “upside down” and it looks like it’ll be another 4+ years before we work through that. Those people can’t move, and lack of mobility slows their climb up the corporate ladder, because the choice of jobs is limited by location instead of just the person’s ability.

    Student loans are keeping the kids indentured servants in a slow economy. What the hell did we expect liberal arts grads with $100K of debt to do? Hey parents: Just say “no” to taking on debt for degrees with no financial future. Your little genius needs to be an engineer, not an art teacher with a degree from a $40K/year college!

    I don’t think we’re growing a generation averse to debt. In the 30′s, finding food was hard and that really affects the soul. Now, we just can’t move to a bigger house when we want. Oh, the horror!

  9. Oral Hazard says:

    To the extent that Wal-Mart is among the bargain retailers that benefit counter-cyclically during recessions, you probably want to contextualize with comparisons to mid-range retailers. Amazon beat expectations in Q1 and juu-ust missed in Q2 ($15.7 billion vs. $15.73 expected). At best The Big Picture seems equivocal on this point.

  10. GeorgeBurnsWasRight says:

    The price of gas has been up until just a couple of days ago. People living paycheck to paycheck tend to cut down on purchases of goods and trips to restaurants when the cost of gas goes up. I note that McDonalds had a similar same-store sales drop recently.

    I don’t know what all the long term effects of the Great Recession will be, but I think financing your standard of living by refinancing to take out the equity in your home won’t be back in favor anytime soon.

  11. Petey Wheatstraw says:

    “As their overall finances have improved . . .”

    I don’t know if that’s true.

    So, what keeps the credit-based economy rolling if this is the trend?

    Debt slavery via student loans?

    Maybe it’s forced participation in the health insurance “industry” under the guise of taxes.

    What it is NOT, is general prosperity.

    Slow morning. Here’s a somewhat appropriate mash up of George Thorogood (Burbon, Scotch, Beer), and The Vapors (Turning Japanese):

    “She a-hollerin’ about turning Japanese, she’ll be lucky if we ain’t all turning Chinese.”

    “He said “I don’t know man, ah she kinda funny, you know, she thinks you’re turning Japanese”
    I said “I know, everybody turnin’ into Asian peasants, now you a peasant, too.”

  12. rd says:

    Much of the debt deleveraging appears to be baby boomers’ mortgages. Does anybody really think that the baby boomers are about to buy $500k houses again as they move into retirement with little savings and income?

    The kids coming out of school right now are competing with their parents and grandparents for jobs. The parents are staying in their jobs to pay off debt accumulated over the past 20 years. It is unlikely that the 20 something crowd is about to aggressively buy housing or big cars until their employment situation improves.

    We are also seeing a decline in suburbia. If this trend continues, I expect to see car sales stay relatively flat and without a resurgence in big vehicles. Ever tried to park a Silverado on a side street in DC?

  13. econimonium says:

    Ezra’s charts add some dimensionality to this. Mortgage debt is the driver here and until those mortgage balances come down, or wages rise enough to leave more free cash spending will be tempered. (By this I mean that I bought my house in 1996 so what then was a big part of my salary is now not by a long shot so I have more free cash to spend/save).

    The interesting part, to me at least here, is Walmart. Is it the low-end consumer or is it Walmart itself that’s broken? When I was in bshcool and we studied Walmart’s numbers and model, my remark was that I found it strange that a viable long-term business model was predicated on having your customers aspire to going somewhere else to shop. And now prices aren’t all that different in other stores (compare a lot of grocery chains and even Target and Costco), competition is heating up, their labor doesn’t care about the company (their internal rate of “shrinkage” is the highest in the business) and their stores are increasingly unstocked and messy. So what’s wrong here? Is it really the low-end consumer (after all, those people are probably pretty consistent in their spend since they have to be) or is it signs of something else wrong with Walmart? Some really good analysis needs to be done here.

  14. Oklahoma Kid says:

    I’m curious how much of the deleveraging is driven by bankruptcy and how much is people setting aside extra to pay on loans/mortgages?

    Having not had a raise in 2 years at my current employer, I recently paid off a 5 year note on a 2009 vehicle 6 months early. I have no plans to purchase a new vehicle to replace the other vehicle I own even though it’s 13 years old and I owe nothing. My everyday expenses for food and other necessities have risen so dramatically in the last 2-3 years we just can’t afford it without an increase in income.

    My middle class social circle in their mid 30s is very risk averse to debt. One friend is selling his home and replacing it with a downtown luxury apartment he will lease. He’s only made a small dent in his student loans he took out in the late 90s for a Bachelor’s and again in 2002 for an MBA.

    I know another person that despite having a household income that’s risen in the low 6 figures, refuses to replace either paid-off vehicle or upgrade his home. Why? Extended unemployment from the Great Recession decimated their finances and almost caused them to lose their home. They are still drowning in credit card debt from 2004.

    Only people I know sitting pretty financially are healthy baby boomers with houses paid off and no kids at home.

  15. culhnd says:

    Oh to be able to slice and dice this data to reveal what is really happening. I’d love to see some median values and indebtedness per consumer. I would hypothesize that older cohorts are deleveraging rapidly with younger cohorts nearly making up for it. One piece missed by this dataset is that the cost of servicing these debts is significantly lower over the last 5 years, freeing up $$ to either speed deleveraging or spend.

    Anyhow – the real reason for commenting – I think the meme that student loan debt is crushing kids is a canard – at least as it pertains to traditional 4 year schools/degree. The folks getting crushed are the ones sucked in by for profit universities – loan default rates are often higher than their graduation rates.

    Here’s some data on 3 year default rates from the Department of Education, summarized in a quick pivot table (apologies if it formats horribly). NBD = number of defaults, NBR = number of loans. >5k data points, this is the top 10 records, sorted on NBR. Penn State just breaks the top 10 and has a vastly different default rate. No bank would lend at the default rates of for profits, but the loans are often guaranteed by the govt (or school) and schools will directly pay fees to the lenders (up to 20-30% of loan amounts). Pretty nice system – guaranteed profits for the school and the bank, with a nice hangover of debt that can’t be discharged in bankruptcy for students in exchange for a few credit hours towards a degree they didn’t get.

    I believe that is what is really driving student loan growth, not tuition inflation. Its a cesspool that needs cleaning.

    Sum of NBD Sum of NBR Default Rate
    University of Phoenix 49,592 187,798 26.41%
    ITT Technical Institute 11,708 34,534 33.90%
    Kaplan University 8,669 33,413 25.94%
    DeVry University 6,394 26,427 24.19%
    Everest College 7,046 23,433 30.07%
    Kaplan College 4,363 18,045 24.18%
    American InterContinental 4,749 17,275 27.49%
    Everest Institute 5,152 16,822 30.63%
    Colorado Technical University 4,031 16,088 25.06%
    Pennsylvania State University 924 14,946 6.18%

    Data source :

    • mllange says:

      This is beautiful data, horrible and terrifying. Bleed the peasants with the promise of title.

    • theexpertisin says:

      I would challenge every high school to report how many of their graduates stating enrollment at a four year college/university are still in school three years later.

      I’ll bet it is under 50%, on average.

  16. Angryman1 says:

    You need to inflation adjust and understand growth capacity can create new debt at a reasonable rate to drive expansion.

    I think people forget that the Federal Government had a ‘fiscal bailout” of 7 trillion dollars which made financial firms able to keep working. The problems is when debt surges to fast like in 2002-6 period. The debt needs to grow steady and slow, but grow.

    Let it also be known, that the market loves it and approves of fiscal bailouts. The “backing” of the dollar reserve is not “fiat”, but US economic expansion. Fiat is just the transmission mechanism. If the US decided not to grow and liquidate, their would be a massive run on the dollar and it would collapse. Short term rates would rocket and invert the yield curve destroying the US economy as countries fend for themselves, including native Americans. That would politically open up a potential problem for capitalism down the road as we know it now.

  17. NMR says:

    Yes I think lower rates might have had something to do with it…LOL. Just about everyone I know who had mortgages much above 4% on primary or secondary residences, or investment property, has re-financed if they were able to. If they had HE loans these got rolled in. Investment property was tougher until early 2012 but eased thereafter if the numbers penciled. Probably got a little way to go but with mortgage rates rising it has to choke it off soon even though rates are still low by historical standards because of the spread with existing mortgages.

  18. BottomMiddleClass says:

    I currently make 68k a year and I’m 39. My investment history is a train wreck…. bought REITs in 96, mortgaged a condo in 97 that did not go up in value because it was a college town and I swear to god developers started air dropping condominiums every night in the area, bought Tech Stocks in 99, bought a house in 2001 at a “Historical Low Interest Rate” of 5.75% one month before the twin towers fells and had a very hard time selling the condominium afterwards.

    I did buy a very cheap small house (125 k), so I didn’t lose it but I’m still stuck in it. My job doesn’t have a pension. I have 150k saved up in the bank, which would seem rich to everyone I know but its a fraction of a fraction of what I need to retire. I really don’t look forward to working my ass off until I’m 65 just to retire in abject poverty because the politicians eviscerate social security. I could get a gun and kill myself when I can’t work anymore… but if that’s my plan why not kill myself now and spare myself 25 years of working my ass off? I should probably invest better but I’m just not smart enough or don’t have the time to figure it out with my current job. What’s the plan for turning 150k plus 15k a year into the 2013 equivalent of 2 million dollars in 2039 so I can retire? And what if I do it and die of a heart attack at age 66? wouldn’t that suck?

    I should really get therapy but it’s so expensive and I’m stressed out OVER MONEY!