Putting Consumer Debt Into a Bigger Perpsective

One thing you could be sure of in pre-Great Recession America was that U.S. consumer debt would rise pretty consistently. The chart below from a Federal Reserve Bank of New York report titled Quarterly Report on Household Debt and Credit depicts the trend: In the 10-year period from 1999 to 2008, debt dipped significantly only once, in mid-2001.

Considering that 2001 was a recessionary year marked by 9/11, that's all the more remarkable.

Then came the recent downturn. The expansion of debt peaked in mid-2008 and then began a steady decline as the recession took hold. Though the slump officially ended in mid-2009, consumer debt continued falling through 2010.

As reported on DailyFinance earlier this month, consumer credit use staged a modest recovery in December 2010: Revolving debt (credit cards) increased from $807.2 billion in November to $826.6 billion in December, and nonrevolving debt (auto loans, etc.) rose from $1.608 trillion in November to $1.611 trillion in December.

This expansion aligns with the 0.6% improvement in retail sales logged in December and the 6.7% rise in consumer sales for 2010. But does this increase mark a new trend of rising consumer debt, or was it more akin to bouncing along the bottom?

To get some longer-term perspective on this question, let's look at some charts from the St. Louis Federal Reserve and review both the Federal Reserve's Flow of Funds report and the New York Fed's recent report on consumer credit.

An Economywide Expansion of Debt

As we can see in the chart below, consumer debt rose steadily during the inflationary 1970s, flattened briefly in the deep recession of 1982-83, and then began a steep 25-year rise. Consumer debt rose from $2 trillion in 1984 to $14 trillion in 2008 -- an extraordinary expansion, given that adjusted for inflation, that $2 trillion from 1984 would equal $4.23 trillion in today's dollars.