US household debt – first increase in 4 years

Source: Credit Suisse

While this overall increase could be interpreted as a sign of improved credit conditions and stronger consumer confidence, a more detailed look tells us there is more to this story. Below is the full breakdown of household debt outstanding over time.
 

Source: NY Fed

Here are some observations:

• Mortgage balances were basically flat on a year-over-year basis, though the steady multi-year declines have been halted.
• Credit card balances remain fairly flat as well.
• Auto loans showed improvement, particularly with longer dated and sub-prime loan volume picking up (see post).
• Student loans on the other hand increased by a whopping $114 billion for the year.

CS economists summarized the situation quite well:

Credit Suisse: – This development can be interpreted as 1) an indication that household risk tolerance is on the rise and income confidence has improved and 2) a sign that bank lending conditions are loosening up. 

Both conclusions, while legitimate, are tempered by the fact that most of the increased debt taken on by households over the past year has been in the form of generous student loans provided by the federal government –not generous consumer loans provided by commercial banks. 

And the pickup in net mortgage debt outstanding in recent months is due to reduced foreclosures and bank loan write-offs, as opposed to increased new mortgage production.