U.S. Households Stimulate the Economy by Increasing Debt
Apply for a Loan
Secured with SHA-256 Encryption
UPDATED: Oct 29, 2012
Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.
U.S. households are taking on more debt than they are shedding — a huge shift since the Great Recession.
Household debt numbers are increasing for the first time since the Great Recession hit in 2007-2008. Reports have shown falling numbers for the past 14 consecutive quarters.
In the time before the recession, American households took on more debt than they could easily afford. Nationwide personal debt reached into the trillions. After the market collapse, households were forced to provide repayment for their loans. Many families deleveraged their possessions, which is to reduce one’s debt by rapidly selling one’s assets. While deleveraging helped some, it took a serious toll on the economy. Fewer loans and overall purchases were performed due to a new fear of unpaid debt.
But that cloud of doubt is clearing.
According to a new Reuters survey, consumers were more optimistic about their own finances and their continued improvement in the economy. In October, consumers were more confident about economic prospects than during any other month in the past five years.
This confidence, signified by an increase in consumer spending, could translate into a more stable economy.
“Consumers spending still drives 65 to 70 percent of G.D.P [Gross Domestic Product] growth,” Susan Lund, the director of research at the McKinsey Global Institute, said in the NY Times. “When deleveraging is over and housing picks up a bit, those two factors are going to be strong engines for the United States economy.”
These changes are already showing positive signs in the economy. According to Equifax, a consumer credit reporting agency, the total value of auto loans increased 13.7 percent for the year-to-date reports in 2012. The sales of new cars and small trucks saw the most increase (15 percent) according to the September report. The increase in new auto loans is projected to continue.
“The average age of cars on the road today in the US is the highest ever recorded and consumers are ready to replace these older vehicles,” said Equifax Chief Economist Amy Crews Cutts in the report. “At the same time, the financial picture has improved sufficiently that we are seeing auto lending markets become facilitators rather than obstacles to meeting this demand, especially in the near-prime segment of the market that had all but ceased to exist during the worst of the financial crisis and recession.”
New auto sales and auto loans dropped dramatically during the recession due to consumers buying used cars and delaying purchases entirely. The average age of American cars on the road today is one of the highest in recent decades. After several years of making auto repairs and holding off on new purchases, the auto loan industry is steadily growing again.
On top of a stabling economy, interest rates are at record lows. This could translate into less spending on old debts, and more confidence to buy new homes and cars once again, thus fueling the auto loan and mortgage sector of the economy.