According to a CNN Business report, American households carry record levels of debt as prices for cars and homes increase. Covid infections continue to decline, and people can use their credit cards for the first time in a while.
US household debt increased to a record $15.24 trillion between July and September, the Federal Reserve Bank of New York reported on Tuesday.
This represented a rise of 1.9 percent (or $286 billion) from the second quarter of this year.
As pandemic relief efforts wind down, we are beginning to see the reversal of some of the credit card balance trends seen during the pandemic,” for instance, a reduction in spending to pay down debts, according to Donghoon Lee, research officer at the New York Fed.
Consumers are returning to their traditional ways of making purchases using credit cards and the balances on credit cards increased by $17 billion, the same as during the second quarter. However, they’re $123 billion less than they were at the close of 2019 before the pandemic struck.
Mortgages are the most significant debt component for households, increased by $230 billion the previous quarter and reached $10.67 trillion.
Student loans and auto loan balances also grew by $28 billion and $14 billion, respectively.
While credit card debt is yet to reach the pre-pandemic levels, the total debt is $1.1 trillion more than at the end of 2019.
Americans are spending huge at the moment. According to economists, it’s mostly “because they can.” With the labor market’s recovery moving forward and the labor shortage pushing up wages, people’s pockets are being filled.
It’s a great thing because everything is getting expensive, the report added. Inflation is at record levels due to disruptions in supply chains which have increased the cost of transport or raw materials. In the same way, the demand for consumer goods is rising.
The most recent inflation data released on Tuesday show that prices that producers receive for their product increased by 0.6 percent in October, adjusted to seasonal fluctuations, which was 8.6 percent in the previous twelve-month period. The majority of the price hike was due to the increase in energy prices.
Companies can only absorb as much of the growth in prices before passing increased costs onto consumers.
By removing food and energy prices and trade services, the producer prices index grew by a seasonally adjusted 0.4 percent last month, or 6.2 percent over the 12-month time.
The price index that tracks intermediate demand (the sale of goods and services to companies) for processed goods increased by 2.1 percent, the largest increase since May, mainly due to higher energy prices.
In the 12-month period that ended in October, the index increased to 25.4 percent, the largest rise since January 1975.
