This issue of the Tenth District Consumer Credit Report begins with an analysis of average consumer debt and average revolving debt in the United States and the District. The analysis explores some significant differences in average consumer debt by District state and offers possible explanations for the variation. The discussion then turns to delinquency rates, which may be the best measure of consumer financial stress. Given recent concerns about the level of household debt, the special topic in this issue considers aggregate household debt levels in the United States and whether the current level should be of concern.
Average Consumer Debt
Average consumer debts are important metrics of individual and household financial well-being in that they provide insight into the debt burden of a typical individual. Debt burden is a critical factor in the capacity of an individual or household to spend and to access credit.
Average consumer debt for the Tenth District, measured as all outstanding debt other than first mortgages and presented as an inflation-adjusted four-quarter moving average, fell to $17,550 in the third quarter of 2018 from $17,744 in the third quarter of 2017 (Chart 1). Inflation-adjusted consumer debt declined moderately in the District over the past year (–1.1 percent) following a consistent increase from 2012 to 2017 (6.1 percent in total, or 1.1 percent annually). U.S. average consumer debt, which has followed a path similar to the District, was $18,359 in the third quarter, down 1 percent from $18,536 a year earlier.
Average outstanding consumer debt by District state in the third quarter ranged from $16,531 in Kansas to $20,120 in Colorado (Chart 2). Coloradans consistently carry more debt than residents of other District states, due largely to a higher cost of living (Chart 3) and relatively high disposable income (Chart 4). Both are highly correlated with average consumer debt and together explain 81 percent of the variation in average consumer debt across District states.1
Most District states experienced significant declines during the past year in inflation-adjusted average consumer debt. The exception is Missouri, where average consumer debt increased a modest 0.8 percent. The most significant decline was 3.5 percent, or $17,302 to $16,702, in New Mexico. Average consumer debt in Kansas declined 3.1 percent.
Revolving debt is a significant and distinct component of total debt. Revolving credit is an open line of credit and includes credit cards and home equity lines of credit. High levels of revolving debt can be more of a problem than other forms of debt. For example, utilization rates on revolving accounts are weighted heavily when determining credit scores while installment loan balances typically have little effect.2 Moreover, while installment loans such as mortgages and student loans typically fund appreciating assets (a house or earning potential), credit cards and other forms of revolving credit often finance depreciating assets or consumables.3
Average revolving debt in the District continued its multiyear decline, falling to $5,047 in the third quarter from $5,071 in the third quarter of 2017 (Chart 5). Since the trough of the Great Recession, average revolving debt in the District has declined by one-third. U.S. average revolving debt decreased to $6,195 in the third quarter from $6,355 a year earlier. U.S. average revolving debt has declined 39.4 percent since the Great Recession.
While understanding average debt levels is imperative for understanding the credit standing of a typical individual or household, a more important factor may be delinquency on credit lines. Delinquencies are a more significant factor in credit scoring and present a more informative picture of consumers’ financial stress.4 Delinquencies typically make it more difficult for consumers to get additional credit. Moreover, delinquency can affect the financial stability of the lenders. While consumer credit delinquencies overall remain well below their post-recession highs, they are creeping up. In the event of an economic slowdown, delinquency rates would be expected to accelerate.
In this report, delinquency measures reflect the share of consumers with at least one account in the credit category (such as auto loans) who are 90 days or more past due on at least one account in that category. In the third quarter, 14 percent of District consumers were delinquent on at least one credit account, similar to the national rate of 14.2 percent (Chart 6). The District delinquency rate on any account has increased over the last two years from 13.6 percent in the third quarter of 2016. The U.S. has experienced a similar trend.
The delinquency rate on any account is influenced most heavily by delinquencies on auto loans, bank cards and consumer installment loans.5 Delinquency rates for each of these credit types are discussed in turn.
Auto delinquencies over the last three years have been trending higher. The share of consumers with overdue auto loans (at least 90 days past due) was 7.2 percent in the District in the third quarter, up a tick from 7.1 percent a year earlier. The auto delinquency rate, however, was up more significantly from its post-recession low in 2015 of 6.6 percent. The share of U.S. consumers with auto delinquencies increased to 7.4 percent in the third quarter from 7.1 percent in the third quarter of 2017 and 6.7 percent in 2015.
Delinquencies are driven by auto loans with lower balances, as the share of outstanding loan balance overdue is much lower than the share of consumers with auto loans that are overdue. Another factor is that some individuals may be delinquent on only one of multiple auto loans. In the District, the share of outstanding auto balance that is delinquent has increased to 5.0 percent in the third quarter from 4.1 percent in the first quarter of 2014.6 A similar pattern is evident in U.S. auto delinquencies, although delinquency rates typically are higher nationally: 5.7 percent in the third quarter.
While auto delinquencies have been rising in both the District and the nation since 2015, the increase has been driven largely by delinquencies among subprime borrowers, considered here to be those with credit scores below 620.7 Subprime borrowers represent less than a quarter of outstanding auto debt, and the average credit quality of auto loans has been increasing, which could temper future increases in delinquencies. Auto loans held by auto finance companies have much higher delinquency rates than auto loans held by banks.8 Nationally, total outstanding auto debt in the third quarter was $1.265 trillion, up 4.3 percent from $1.213 trillion a year earlier.9
Delinquencies on bank cards also rose in the District, to 7.3 percent in the third quarter from 6.9 percent a year earlier. Nationally, bank card delinquencies rose to 8.0 percent from 7.6 percent over the period. Bank card delinquency rates for both the United States and the District remain well below their peaks during the Great Recession, which were 10.4 percent and 11.2 percent, respectively. Delinquency rates fell consistently until 2015 (with a low of 6.6 percent for the District and 7.3 percent nationally), but since have edged up.
Unlike delinquency rates on other types of consumer debt, the delinquency rate (90 days or more past due) on consumer finance loans is substantially higher in the District than in the nation as a whole at 12.4 percent and 8.4 percent, respectively. As noted in previous reports, the relatively high delinquency rate in the District for consumer finance loans is due to very high delinquency rates in Oklahoma (21.5 percent), New Mexico (19.6 percent) and Missouri (14.7 percent). While many factors determine delinquency rates across states, state-level variation in consumer law and policy largely explains higher consumer finance delinquency rates in these states.10
While credit delinquencies generally have edged up over the last year, mortgage delinquencies continued to decline in the United States, the District overall and each District state except Nebraska. The mortgage delinquency rate (total past due) in the District was 4.4 percent in October, down from 4.6 percent a year earlier (Chart 7). The U.S. mortgage delinquency rate fell over the year to 5.5 percent from 6.1 percent. Mortgage delinquencies varied significantly across the District. The mortgage delinquency rate fell across all District states except Nebraska, which experienced a sharp increase to 4.3 percent from 4.0 percent. However, the mortgage delinquency rate in Nebraska was down significantly from 4.6 percent in September. While mortgage delinquencies continued on a downward trend in the District and the nation, the rates in Nebraska seem to have leveled off (Chart 8). It is not yet clear if this is a new trend in Nebraska mortgage delinquencies, as delinquency rates have been low in the state for several years.11
Inflation-adjusted average consumer debt recently has begun to fall after several years of moderate but consistent increases. Average revolving debt continued its secular decline. There is significant variation in inflation-adjusted average consumer debt across District states. Some possible explanations for this variation are differences in cost of living and average income. Generally, delinquency rates have crept upward over the past year, but mortgage delinquencies are an exception.
In This Issue: National Trends in Aggregate Consumer Debt
Some consumer finance analysts have begun to express significant apprehension about a recent peak in nominal consumer debt.12 A potential problem with high levels of consumer debt is that households could be overleveraged and become unable to manage their debts, putting pressure on economic growth. Another concern would be systemic risks to the financial system. But while consumer debt levels should be monitored closely, several factors suggest that consumer debt presently may not be a critical concern. Among these factors are (1) inflation-adjustment, which shows the growth in debt is much less dramatic than many think, and that with the exception of student loans it actually is declining; (2) relative to the size of the economy, consumer debt has declined in relative terms, making systemic risk less of a concern than if the economy were not growing with consumer debt; and (3) the ability of consumers to service their debts has increased once mortgages are considered.
Total U.S. consumer debt reached an all-time high in the third quarter at $4.372 trillion, up 3.8 percent from a year earlier (Chart 9).13 Excluding student loans, total consumer debt was $2.930 trillion, up 2.6 percent from a year earlier and also a historical high.
Inflation adjustment paints a much more subdued picture of the growth in consumer debt, showing it has grown at a moderate pace, and when student loans are removed, it actually lies well below pre-recession levels (Chart 9). While U.S. consumer debt was 36.3 percent higher than in 2007, just prior to the Great Recession, when adjusting for inflation, the increase was a more modest 12.1 percent, or 1.0 percent annually. Excluding student loans, consumer debt was up 9.4 percent from 2007 but down 10.1 percent in inflation-adjusted terms. Moreover, inflation-adjusted consumer debt minus student loans declined modestly over the past year.
Another factor that partially mitigates current concerns about consumer debt is its size relative to the rest of the economy. Total household debt (which includes mortgages) as a share of the economy, as measured by gross domestic product (GDP), has been decreasing steadily since the Great Recession (Chart 10). In the first quarter of 2008, household debt was 98.5 percent of GDP. By the second quarter of this year, the latest date at which data are available, total household debt was 75.4 percent of GDP, the lowest since 2002. The size of household debt as a share of GDP is important for a couple of reasons. For one, GDP provides a rough measure of the capacity of the economy to pay off the debt. As GDP gets larger relative to the size of debt, the economic capacity to pay off the debt increases.14 Further, a decline in household debt as a share of GDP mitigates concerns about systemic risks to the financial system from increasing household debt.15 A recent publication from the Board of Governors of the Federal Reserve System indicates current conditions show little systemic risk from the household sector, as “overall vulnerabilities in household credit are currently ‘moderate,’ with household debt levels remaining contained relative to incomes.”16 Recent comments by Federal Reserve Chair Jerome Powell suggest that “household debt would not present a systemic stability threat” if the economy were to “sour.”17
Another factor that indicates current consumer debt levels may be less worrisome is the ability of consumers to repay the debt from disposable income. Servicing of household debt is more affordable to consumers than in 2007 (Chart 11). Specifically, household debt service has fallen from 13.2 percent of disposable income in the fourth quarter of 2007 to 9.8 percent in the second quarter of 2018.18 The decline is due to a reduction in the share of disposable income required to service mortgage debt. Still, if the recent rise in mortgage rates were to continue, mortgage servicing costs would be expected to rise for those with adjustable-rate mortgages or new fixed-rate mortgages. Servicing of consumer debt increased from 4.9 percent of disposable income in the fourth quarter of 2012 to 5.6 percent in the second quarter of 2018. However, the cost of servicing consumer debt remains below its 2007 level of 5.9 percent and well below its 2001 level of 6.7 percent. Still, increases in the ratio of consumer debt servicing to disposable income, if they were to continue, suggests consumers would find debt payments more difficult to manage.
Summary. Despite recent concerns about the current level of aggregate household debt, this analysis shows aggregate household debt is not yet at a level that raises critical concern. Inflation adjustment shows that growth in household debt is more subdued than the commonly reported nominal data suggest. Moreover, declines in debt-to-GDP and the financial obligation ratio for household debt suggest the capacity to pay of household debts is solid. With those points in mind, the rising debt servicing ratio (nonmortgage debt) could become a concern in an economic downturn.
 This statistic was generated from a linear regression of average consumer debt on the cost of living index and per capita disposable income. Results are available upon request. The cost of living index comes from the Council for Community and Economic Research. Disposable income data are from the U.S. Bureau of Economic Analysis.
 See Fair Isaac Corp., “Understanding FICO Scores: What You Need to Know about the Most Widely Used Credit Scores,” available at External Linkhttps://www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf
 An exception would be an auto loan, which is an installment loan on a depreciating asset. Other installment loans also may be used to finance depreciating assets, such as furniture.
 Fair Isaac Corp.
 Determined by a linear regression of delinquency on any account on delinquency rates for the various credit categories using standardized coefficients. Results are available upon request.
 Alternative measures of delinquency, and why one may choose one over others, are discussed in the Dec. 1, 2017, issue of Tenth District Consumer Credit Report. Available at https://www.kansascityfed.org/publications/community/consumer-credit-reports/articles/2017/consumer-credit-report-11-2017
 Jason Brown and Colton Tousey, 2018, “Auto Loan Delinquency Rates Are Rising, but Mostly among Subprime Borrowers,” The Macro Bulletin, Federal Reserve Bank of Kansas City, Aug. 15. Available at https://www.kansascityfed.org/publications/research/mb/articles/2018/auto-loan-delinquency-rates-rising
 Andrew Haughwout, Donghoon Lee, Joelle Scally and Wilbert van der Klaauw, 2017, “Just Released: Auto Lending Keeps Pace as Delinquencies Mount in Auto Finance Sector,” Liberty Street Economics blog, Federal Reserve Bank of New York, Nov. 14. Available at External Linkhttps://libertystreeteconomics.newyorkfed.org/2017/11/just-released-auto-lending-keeps-pace-as-delinquencies-mount-in-auto-finance-sector.html
 Federal Reserve Bank of New York, 2018, Quarterly Report on Household Debt and Credit, November [data file]. Available at External Linkhttps://www.newyorkfed.org/microeconomics/hhdc
 For more detailed information on this issue, see the December 2015 issue of the Tenth District Consumer Credit Report. Available at https://www.kansascityfed.org/en/publications/community/consumer-credit-reports/articles/2015/11-27-2015/tenth-district-consumer-credit-report
 The general housing market in Nebraska was analyzed in the June 2018 issue of the Nebraska Economist. Available at https://www.kansascityfed.org/publications/research/ne/articles/2018/2q2018/nebraskas-housing-market-heating-up
 See, for example, Dante Disparte, 2018, “Forget Black Friday, We Need a Day of National Resilience,” Forbes, Nov. 26; Michelle Singletary, 2017, “Consumer Debt is at a Record High. Haven’t We Learned?” The Washington Post, Aug. 12; Kristin Broughton, Neil Haggerty and Andy Peters, 2018, “9 Things Bankers Fear this Halloween Season,” American Banker, Oct. 28; Stacy Miller, 2018, “Burgeoning Consumer Debt Expected to Cross $4 Trillion in 2018,” The Financial Analyst, June 22.
 Federal Reserve Bank of New York, 2018, Quarterly Report on Household Debt and Credit, November [data file]. Available at External Linkhttps://www.newyorkfed.org/microeconomics/hhdc
 The distributions of income and debt are factors in the capacity to pay personal debts with gains from economic growth. Debt-to-income ratios are lowest for the bottom 20 percent of the income distribution at 67.5 percent. It is highest for those in the top 10 percent of the income distribution, where the debt-to-income ratio is 260.2 percent (calculated using data from the Federal Reserve’s 2016 Survey of Consumer Finances). For a summary of family finances derived from the Survey of Consumer Finances, see Bricker at al., 2017, “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, 103(3), 1-42. Available at External Linkhttps://www.federalreserve.gov/publications/2017-september-changes-in-us-family-finances-from-2013-to-2016.htm
 See International Monetary Fund, 2017, Global Financial Stability Report October 2017: Is Growth at Risk, particularly chapter 2, “Household Debt and Financial Stability,” October.
 Board of Governors of the Federal Reserve System, 2018, Financial Stability Report, November, as quoted in Sam Fleming, 2018, “Fed Flags Hard Brexit and Italian Debt as Near-Term Risks to U.S.,” Financial Times, Nov. 28.
 Federal Reserve Chairman Jerome H. Powell, 2018, “The Federal Reserve’s Framework for Monitoring Financial Stability,” at the Economic Club of New York, Nov. 28. Available at External Linkhttps://www.federalreserve.gov/newsevents/speech/powell20181128a.htm
 Federal Reserve Board of Governors, Household Debt Service Ratios/HAVER Analytics.