Average Household Debt: $132,000 – Not Counting Mortgage by Gary D. Halbert


by Gary D. Halbert

August 30, 2016

  1. Fed Chair Janet Yellen Ready to Raise Interest Rates… Maybe
  2. Yellen’s #2 Man Predicted Two Rate Hikes – Sept. & Dec.
  3. So What is the Eco Data We’ll See Before September 21?
  4. Household Debt: Another Reason For the Slow Economy
  5. Why US Households Have Such Large Average Debt Levels


A new study out last week reported that the average US household has over $132,000 in outstanding debt – not counting their home mortgage. If we add the home mortgage, the average debt level soars to over $263,000. Both numbers are huge, but are still below the peak debt levels just before the Great Recession in 2008. I will give you the details below.

I will argue today that these huge household debt levels are one of the reasons that this economic recovery is so weak, with GDP growth averaging less than 1% in the first half of this year. I will also explain why the continued huge household debt level is not just because US consumers spend beyond their means. It’s an interesting dilemma.

Sovereign Debt, Federal Reserve, NIRP
Photo by Freeimages9 (Pixabay)

But before we get to that, I will opine on the latest Fed discussions on when to raise short-term interest rates, especially in light of Janet Yellen’s latest policy speech last Friday in Jackson Hole, Wyoming. The big question is whether the Fed will hike rates at its next policy meeting on September 20-21. This will be a big focus of market attention between now and then.

It should make for an interesting letter, so let’s get started.

Fed Chair Janet Yellen Ready to Raise Interest Rates… Maybe

Chair Yellen made her much-anticipated policy speech last Friday at the annual Jackson Hole gathering of monetary leaders from around the world. Some expected her to deliver a “hawkish” speech in favor of raising the Fed Funds rate sooner rather than later. Others expected a continuation of her cautious “data-dependent” stance on the next rate hike.

As it turned out, both interest rate bulls and bears found something to hang onto in Ms. Yellen’s carefully scripted (as always) speech. She started out by making a case for raising the Fed Funds rate soon based on what she cited as encouraging signs regarding the economy, largely based on the continuing improvement in the labor market.

Then she turned wishy-washy and returned to her more cautious, data-dependent, we’re not in a hurry scenario. Here’s a summary of her comments. She began by saying:

“U.S. economic activity continues to expand, led by solid growth in household spending… While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market. Smoothing through the monthly ups and downs, job gains averaged 190,000 per month over the past three months.

Looking ahead, the FOMC expects moderate growth in real gross domestic product (GDP), additional strengthening in the labor market and inflation rising
to 2% over the next few years. Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the Federal Funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.

…In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the Federal Funds rate has strengthened in recent months.”

Of course, Ms. Yellen made no specific suggestions as to when the Fed would enact the next Fed Funds rate hike. Instead, she gave the audience a nebulous chart showing three possible scenarios for “normalizing” the short-term interest rate. The chart showed no exact start-and-stop dates for the process. The closest she came to doing so was this statement:

“The Fed policy committee continues to anticipate that gradual increases in the federal-funds rate will be appropriate.”

The bottom line is that while Ms. Yellen’s speech was more upbeat about the US economy (for reasons I don’t understand), she stopped well short of predicting a hike in the Fed Funds rate at the next policy meeting on September 20-21.

Yellen’s #2 Man Predicted Two Rate Hikes – Sept. & Dec.

In my BLOG last Thursday, I discussed recent speeches by Fed Vice-Chairman Stanley Fischer and New York Fed President William Dudley, both of whom are permanent voting members of the Fed Open Market Committee (FOMC). Both argued earlier this month that the Fed Funds rate needs to be increased sooner rather than later.

Both Fischer and Dudley believe that the US economy will surge in the second half of this year, based on the questionable Atlanta Fed’s GDPNow forecast that the economy will jump by 3.6% on average in the 3Q and 4Q. None of the economic reports I see support that forecast.

The Commerce Department, for example, revised its 2Q GDP estimate last week from 1.2% in late July to only 1.1%. So growth in the anemic first half of the year fell to slightly below 1%. As I will discuss below, retail sales for July were well below expectations.

So other than the strong labor market, it remains to be seen what Yellen & Company are seeing as evidence of a “strengthening economy” of late.

Yet despite that, Fed Vice-Chair Stanley Fischer went out on a limb last Friday in Jackson Hole and predicted two rate hikes before the end of this year in an interview with CNBC following Yellen’s speech last Friday.

Asked during the CNBC interview if investors should be on the edge of their seats for a rate hike as soon as September and for more than one rate hike this year, Fischer replied:

“I think what [Yellen] said today was consistent with answering yes to both your questions, but these are not things we know until we see the data.”

So What is the Eco Data We’ll See Before September 20-21?

Clearly, Fischer and Dudley would like to see a quarter-point Fed Funds rate hike on September 21 and another one on December 14 at the conclusion of the last policy meeting of the year. In the next few weeks, the US stock and bond markets will be laser-focused on the odds for a rate hike on September 21. Fed Funds futures now place the odds at 30% for a September rate hike (up from 24% before Yellen’s speech) and a 57.2% chance in December.

The question is, what important economic data will we see between now and then? The answer is, not much. The most important report we will see between now and September 21 is this Friday’s August unemployment report. Pre-report expectations are for the headline unemployment rate to remain unchanged at 4.9%.

Assuming that’s true, then the big focus will be on the new jobs created number, which can be very volatile. As noted above, new jobs have averaged 190,000 over the last three months. So a number above 200,000 will likely signal a rate hike on September 21, while a number well below 200,000 would suggest that the Fed sits tight until the December meeting.

So it’s a wait and see game. If it looks like the Fed is going

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