The latest statistics from the Federal Reserve on household finances seems to have everyone touching a different part of the elephant. One Reuters report bore this news...
U.S. consumer credit unexpectedly slid by a record $7.20 billion in October, on a big drop in loans taken for cars and boats, a Federal Reserve report showed on Wednesday.
... which was picked up by Daniel Gross and by The Skeptical Speculator. Echoing Calculated Risk, MarketWatch chose to stress this news:
Americans increased their household debt at an annual rate of 11.6% in the third quarter, the fastest growth in 18 years, the Federal Reserve said Thursday in its quarterly flow of funds report.
But Fox News, channeling yet another Reuters piece, emphasized the broader story about household balance sheets:
The net wealth of American households rose in the third quarter of 2005 as real estate and financial assets gained value, but household debt grew at the fastest rate since 1987, the Federal Reserve said on Thursday.
That last piece seems, to me, the important part of the data. Although there is always a lot of hand-wringing about the precarious degree of household debt accumulation, it is a good idea to keep a couple of things in mind. First, a rising ratio of household debt to disposable income has been the story for a long time now:
Second, there is no evidence of a dramatic acceleration in the burden of servicing that debt:
Finally, as the Federal Reserve Bank of San Francisco's Kevin Lansing has emphasized, if you are the representative consumer, you have been doing just what theory predicts you will do:
Rapidly rising stock and house prices, fueled by an accommodative environment of low interest rates and a proliferation of "exotic" mortgage products (loans with little or no down payment, minimal documentation of income, and payments for interest-only or less) have sustained a boom in household spending and provided collateral for record-setting levels of household debt relative to income.
In fact, according to Kevin's estimates households have, if anything, been consuming less than might be suggested by changes in net worth, interest rates, and the secular trend he associates with financial market innovation:
We can argue -- and will, I suppose -- about what part of the increase in household net worth is "real." But I can't say that anything in the data revealing consumer behavior seems all that surprising.