American Consumer Debt Declines for First Time In a Year

U.S. consumer debt fell last quarter for the first time in a year as mortgage originations slumped to the lowest level since 2000, the Federal Reserve Bank of New York said.

Household debt dropped 0.2 percent, or $18 billion, to $11.63 trillion from January through March, snapping the longest streak of consecutive quarterly increases since the third quarter of 2008, according to the New York Fed. Borrowing for cars and education increased, it showed.

“A slight decline in real-estate related balances, consistent with broader housing market developments, contributed to a flat quarter for total outstanding household debt,” Donghoon Lee, senior economist at the New York Fed, said in a statement. “Meanwhile, we observe continued strength in the auto loan market.”

While the total level of debt was $479 billion higher than a year earlier, it remains 8.2 percent below the peak of $12.68 trillion reached in the third quarter of 2008.

Mortgage debt fell by $69 billion and home-equity lines of credit decreased by $5 billion in the second quarter, according to the New York Fed. At the same time, mortgage originations decreased by $46 billion to $286 billion, the lowest level of new mortgage activity since 2000.

Auto loan debt advanced by $30 billion to $905 billion, marking the 13th consecutive quarter of increases. The rise was spurred by a $101 billion increase in originations, the most since the third quarter of 2006.

Subprime Lending

In a blog post accompanying the report, New York Fed economists including Lee said subprime auto lending is “definitely on the rise,” a change in the consumer lending market that they will keep monitoring.

Student loan balances increased by $7 billion and credit card debt rose by $10 billion, the report showed.

At the start of the third quarter consumers eased off on spending at department, electronics and furniture stores as retail sales stalled in July, marking the weakest performance in six months, Commerce Department figures showed yesterday in Washington. The flat reading was below the median forecast of 82 economists surveyed by Bloomberg, which called for a 0.2 percent advance.

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