A New York Federal Reserve report released on Tuesday showed that American’s borrowing hit $13.29 trillion in the second quarter of 2018. The sum reflected a $454 billion increase from a year ago and confirmed an increase in consumer borrowing for the 16th straight quarter. The debts were accrued in borrowing for homes, autos, student loans and credit cards.
The good news is that the rise in debts did not impact the ability for borrowers to repay their loans in the past quarter. Only 2.3 percent of loans were considered seriously delinquent, meaning that they are 90 or more days overdue. Student loan delinquency decreased to 8.6 percent from 8.9 percent in the second quarter, the Fed survey showed, which attests to the positive state of the U.S. economy.
It is not uncommon for borrowing to increase in a solid labor market, and with a 3.9 percent unemployment rate, the U.S. labor market remains one of the strongest in the world. In July the number of unemployed American was 6.280 million, down 284,000 from June.
Real wealth is the primary driver or economic growth and increasing compensation may be one way to increase this benchmark and to keep the rates of loan delinquency at a minimum. Likewise, President Trump’s tax cuts may serve to keep more money in the market and to keep consumers comfortable with borrowing money as needed. Still, analysts with the Washington Post have noted that wage growth has not yet become commensurate with other indicators of labor-market tightness. The current wage growth rate stands at 2.7 percent, not much more than the inflation rate which is hovering near the 2 percent target. In other words, unemployment is low, but many new jobs may be low paying.
According to a Willis Towers Watson survey published by CNBC, the strong labor market may provide additional benefits to Americans; increased salaries in the coming months. According to the survey, companies understand that in this tight labor market, competitive compensation is essential in order to keep employees at their jobs. In the new year, the survey reports, organizations will feel pressured to increase salaries or bonuses or “risk losing some of their best talent.” In fact, non-executive employees may be receiving more generous salary increases or bonus than executives next year, for just this reason.
On the flip side, however, increased tariffs implemented by President Trump may spell trouble for some industries which may cause the labor market to restrict, or companies to tighten their budgets more than anticipated. However, with only a few weeks into the new tariffs and more to come, it remains unclear whether they’ll create new job opportunities as President Trump expects, or restrict opportunities as companies cut back.