After bingeing on credit for a half decade, U.S. consumers may finally be feeling the hangover.
Americans faced with lackluster income growth have been financing more of their spending with debt instead. There are early signs that loan burdens are growing unsustainably large for borrowers with lower incomes. Household borrowings have surged to a record $12.73 trillion, and the percentage of debt that is overdue has risen for two consecutive quarters. And with economic optimism having lifted borrowing rates since the election and the Federal Reserve expected to hike further, it’s getting more expensive for borrowers to refinance.
PG View: Americans have essentially borrowed their prosperity from the future. The trouble is, when the future becomes the present, consumers reach a burden that won’t let them borrow any more and the severely cut back their consumption and the economy stalls.