Understanding how consumer debt impacts the economy

Published: 08/25/2023
Updated: 12/21/2023

Exploring how consumer debt can influence overall consumer spending and impact the economy

by Kristen Stephenson

Earlier this year, GPEC launched the Economic Monitor, a comprehensive web tool designed to provide timely, actionable insights into the state of the economy. Through an exploration of key economic indicators, the Economic Monitor offers a concise picture of health at both national and regional levels. 

Each month, I’m diving into one of the indicators from the Monitor to share in greater detail what the metric measures are, why it matters to the economy and what the current numbers tell us. This month, I wanted to look at consumer debt levels.  

What does this metric measure?

Consumer debt measures all liabilities of consumers/individuals that require payments of interest or principal by consumers to the creditors at a fixed date in the future. It is calculated by summing up all liability categories, which include mortgage debt, home equity revolving credit, student loans, auto debt, credit card debt and other accounts payable.  

Why does this metric matter?

The rise in consumer debt levels when the economy slows and/or interest rates rise can lead to a hard pullback in consumer spending. As people pay more of their income to debt, they have less money to purchase other items. Because consumer spending accounts for 70% of U.S GDP, too much pullback can tip the economy into a recession. 

What do the current numbers say?

According to the Federal Reserve Bank of New York, which tracks household debt on a quarterly basis, total United States consumer debt reached $17.06 trillion in Q2 2023, up by $16 billion from the previous quarter. Overall household debt rose by only 0.1% from Q1 to Q2 2023 but was up 5.6% when compared to the same time last year. 

Housing debt comprises approximately 75% of the total consumer debt, at $12.35 trillion, which was relatively unchanged from the previous quarter. Student loan balances actually declined slightly, by $35 billion, to reach $1.57 trillion. However, credit card debt topped $1 trillion for the first time in the index’s history, jumping by 4.6% quarter-over-quarter and 16.2% year-over-year. Automobile loans also contribute to overall debt levels at $1.58 trillion. The current debt held in auto loans is similar to the previous quarter; however, this category has been steadily rising for the last decade. 

Track trends in the Economic Monitor

To see industrial trends mapped alongside 13 other key indicators of health, visit the Economic Monitor. We hope you find the Monitor a valuable tool in understanding the ever-changing economic landscape.

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