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The Q4 Financial Accounts allow us to update some standard metrics related to the Household Sector

Published on March 7, 2024

Gerard MacDonell

Bloomberg’s reporting on its US ECO page of the change of household net worth during the fourth quarter is fun for a couple reasons. First, it allows us to stare at the Excess Savings crowd, hold our pinky to our lips, and say $5 trillion tauntingly, as Dr. Evil should have. Second and more seriously, it is a reminder that the Financial Accounts are out and that I can update a couple standard charts regarding household sector use of credit.

The household sector has continued to delever, which is quite striking given how late in the cycle we are – if we view the Covid shock as a huge shock but not really a “cycle” ender. This may change as the effective yield on mortgage debt eventually resets higher. But for now, it is a macro stabilizer. Of course, this aggregate debt ratio lacks granularity, and cannot help us much with credit quality trends at, say, the lower end or in used autos. If they become an issue for lenders, then they are an issue for us. But the aggregate household leverage trend is nevertheless relevant at the macro level. Incidentally, this benign trend is linked to the huge fiscal deficit, the sustainability of which is now under debate. Presumably that is a longer term issue.

*Source: Federal Reserve Financial Accounts, CBO, NBER, FH calculations*
*Data are actual to Q4. I haven’t got around yet to refreshing the CBO’s potential GDP estimates to current vintage.*

Despite what the Fed’s Semi-Annual Report to Congress implied, the household sector’s reliance on credit to support the flow of consumer spending has continued to decline steeply, although in fairness a big part of this is just lower inflation itself. On the other hand, recall the deleveraging point, which directly addresses that. I think what the Fed might have meant is that there has been a bit of a hook higher recently in the use of consumer credit taken in isolation. Early data for 2024 suggests that that may have been a 1-quarter wonder, but we shall see. In any case, the household sector is not now particularly reliant on credit use to support its spending, in aggregate.

The credit impulse looks at the issue above in first derivative terms. I have given up on measuring a credit impulse because the width of the window, 4- quarters vs 8-quarters, etc., is arbitrary and really matters. But just looking at the chart immediately above and eyeballing your own sense of the recent change, the credit impulse has been more or less negative.

A graph of a stock market

Description automatically generated with medium confidence — *Source: Federal Reserve Financial Accounts, BEA, FH calculations*
*Data are actual to Q4.*

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