Coronavirus keeps spreading, the stock markets keep dropping, and evidence grows of a global economic slowdown. You could hardly be blamed for feeling a little uneasy, especially if you’re still dusting off the psychological fallout from the Great Recession.
I’m here to allay some fears. I can’t guarantee everything will get better soon. It might get far worse, if the coronavirus can’t be controlled or another unforeseen financial menace arises. And if I could predict stock market swings, I would be driving a nicer truck.
But consumers in Florida and the country are in solid shape to withstand — or at least mitigate — a downturn. If we are headed for a recession, it won’t be like 2007-2008, when reckless spending driven by wildly loose lending standards paved the way to a crisis.
Let’s start with household debt, made up mostly of credit card balances, mortgages, and auto and student loans. The total topped $14.1 trillion in the last few months of 2019, an all-time high. Record amounts of debt doesn’t sound good. But that’s the problem with some aggregate numbers — they provide little context when they fail to account for a growing population and expanding economy.
Per person and adjusted for inflation, debt fell about 18 percent from 2008, according to data from Federal Reserve Bank of New York. Florida posted even lower amounts of household debt per resident than the nation.
Americans also spend a smaller slice of their incomes on debt payments than they did 12 years ago. Experian, the credit reporting company, recently determined that annual incomes have risen by about $12,000 since 2009 and average debt had dropped by about $4,000. The result is a 27 percent decrease in debt as a portion of income.
So much for record debt levels.
Mortgages account for about 68 percent of household debt. The total has risen recently, propelled in large part by ultra-low interest rates. The growth is a good thing, given that home ownership often helps families build wealth, a buffer against hard economic times. Plus, tighter lending standards mean few buyers can take out loans they cannot afford.
Credit card debt totaled about $1.1 trillion last year, an eye-popping figure that you could argue is way too high. But it’s less than the inflation-adjusted total at the end of 2008. Another factor: The country’s population has grown by about 30 million since then, so the debt is spread among more people.
Think of it this way: Americans added about $77 billion in credit card debt last year, according to WalletHub. But that’s less than half of what was added in 2008, adjusted for inflation and population growth.
And households appear to be able to handle the debt. About 4.7 percent of all household debt was in some stage of delinquency at the end of 2019. That’s about the same percentage as the previous three years and far lower than during the Great Recession.
The number of people at least 90 days delinquent on their credit cards and auto loans is rising, but not at an alarming rate, at least not yet. Student loan delinquencies remain about the same as in recent years.
The savings side of the ledger looks even better. For most of the 1960s through the mid 1980s, households saved more than 10 percent of their disposable incomes. But the rates plunged over the next two decades, bottoming out at 2.2 percent in 2005. In January, the personal savings rate hit a respectable 7.9 percent.
Often savings rates drop during good economic times, as people feel comfortable spending money. Instead, Americans have put more money aside every year since 2016, despite a long economic expansion. Why? The reasons aren’t entirely clear. It’s harder to get a loan these days, so people might be socking away money instead of financing more large purchases. President Donald Trump’s tax cuts also might have played a role. Whatever the reason, people have more money at their disposal.
Households are wealthier, too. Net worth as a percentage of disposable income was close to all-time highs in December, with data extending back to the end of World War II. The recent drop in the stock market will cut into those numbers, but better to start from a strong position.
This is not to say that everyone is doing well. Lots of people are struggling and more will likely join them as the country grapples with coronavirus and fends off other economic challenges in the coming months.
As a whole, though, households are better positioned than before the last recession. How long that lasts depends on the severity of the downturn.