Household Debt Service Burden
and Rising Delinquencies

As we head into a possible recession, an important concern is how well consumers are positioned to weather the storm. A useful measure is the "Household Debt Service Burden" series published by the Federal Reserve System. These data have recently been revised, based on changes to the Federal Reserve Board's Flow of Funds accounts which adjusted the allocation of home mortgage debt between household borrowers and other borrowers. That reallocation increased the amount of household home mortgage debt outstanding. Minor seasonal adjustments led to slight changes in the consumer debt series.

The most recent data available are shown in the accompanying chart. In the third quarter of 2000, total debt payments amounted to 14.08 percent of disposable household income. Only during 1986 were higher levels of debt burden reached, with a peak of 14.38 percent in the fourth quarter of that year.

Printer-Friendly Chart

The highest debt payment burden in 15 years is yet another sign of stress on household budgets. Last month we noted that credit card delinquencies were trending upward. Data from the American Bankers Association confirm this trend for credit cards as well as all other categories of consumer loans except home equity loans. The ABA's index of credit card accounts delinquent 30 days or more rose in the fourth quarter of 2000 to 3.34 percent of all accounts, up from 3.22 percent in the fourth quarter of 1999. The volume of dollars delinquent was 4.25 percent of total outstandings, but remained below the 4.28 percent level of a year earlier.

To be sure, the credit card delinquency picture remains more positive than it was two years ago. The fourth-quarter dollar delinquency level was the lowest fourth-quarter figure since 1994. "We certainly don't want to make this seem more dramatic than it is," remarked ABA chief economist James Chessen to the American Banker. Still "this [upward] pattern is pretty broad-based. It shows a stronger trend than we had suspected in the last few quarters. By now there has been several quarters of this."

The ABA's composite index of delinquent closed-end consumer installment loans also rose in the fourth quarter 2000 to 2.4 percent of all accounts, up from 2.27 percent in the fourth quarter 1999. The composite index reached its highest point in three years. The index includes direct and indirect auto loans, and other personal loans. Chessen commented that "usually you'll have some categories going up and some going down. When all the categories are up, that's a strong indicator that consumers are feeling a pinch."