FEBRUARY 2004

Growth in Debt

Over the past three quarters, households have increased their debts faster than any other entity except the federal government. The table below shows that in each of the past seven quarters, households increased their debts by a seasonally adjusted annual rate of more than 8.6 percent. Consumers’ quarterly rates of increase in their debt exceeded those of the federal government in all but two of the seven quarters. Further, the quarterly rate of increase of consumer debt greatly outpaced that of business debts in all seven quarters.

These data do not necessarily mean that consumers are becoming over-indebted. Rather, they do indicate a persistent optimism on the part of consumers (and their creditors) about their future and their ability to repay their debts. As we have noted in previous issue, consumer expenditures, financed in large part by consumer and home equity credit, helped to prevent the relatively mild recession of 2000-2001 from becoming much worse.

Source: Federal Reserve Board, Flow of Funds Accounts of the United States.