WASHINGTON–The American Middle Class is falling deeper into debt, according to a new report that has found even as the prices for cars, college, houses and medical care have continued their steady rise, incomes have been largely stagnant for two decades, the Wall Street Journal reported.
“Although there has been an uptick in average income, filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy,” the Journal stated.
The report notes consumer debt, not counting mortgages, has climbed to $4 trillion—higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding, student debt totals $1.5-trillion (exceeding all other forms of consumer debt except mortgages), an auto debt is up nearly 40% adjusting for inflation in the last decade to $1.3 trillion.
As every credit union that makes auto loans is well aware, the Journal added the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187, according to an analysis of data from credit-reporting firm Experian.
Back in ‘Vogue’
Also back in “vogue,” according to the Journal’s analysis: unsecured personal loans. “The debt surge is partly by design, a byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving,” the Journal reported. It has reshaped both borrowers and lenders. Consumers increasingly need it, companies increasingly can’t sell their goods without it, and the economy, which counts on consumer spending for more than two-thirds of GDP, would struggle without a plentiful supply of credit.”
The analysis continued to note that in one sense, the growing consumer debt is a vote of confidence in the future, as people borrowing money today expect to have the income tomorrow to pay it back.
“Consumer debt tends to rise when borrowers feel secure in their jobs,” the Journal stated. “But the debt pile is also an accumulated ledger of economic risk. It should be manageable so long as unemployment remains low. If job losses begin to rise, it would become unsustainable for some share of borrowers, raising chances of an increase in missed payments and lenders writing off unpaid balances.”
‘When You Dig Deeper…’
Cris deRitis, deputy chief economist at Moody’s Analytics, told the Journal, “On the surface things look pretty good, but if you dig a little deeper you see different subpopulations are not performing as well.”
The full Wall Street Journal report, which includes numerous interviews with people struggling to make ends meet and reporting high levels of stress, can be found here.