The latest New York Fed report on consumer debt and credit made waves this week with the news that household debt surpassed its 2008 peak in dollar terms in the first quarter. But that is nothing to worry about since nominal incomes have risen by around a third since then, meaning that the overall debt burden has fallen significantly. In addition, interest rates remain significantly lower, meaning that the servicing costs on household debt are easily manageable.
Nonetheless, the report did show student loan debt rising at a rapid pace and revealed an uptick in the delinquency rate on auto loans to a four-year high. We do not think that rise in auto loan delinquencies foreshadows a more serious downturn, not least because lenders have already moved to tighten standards. But the continued rise in student loan debt, while not a systemic risk to the financial system, shows no signs of ending.
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