As debt in American households shrank for the seventh straight quarter, South Carolina households showed the lowest debt-to-credit ratio in a decade.
A Federal Reserve report indicates that household debt has dropped 6.5 percent from a peak in 2008. Credit card balances have declined in the past two years, but the Los Angeles Times reports that part of the reason for that is a sharp lowering of the card limits allowed by lenders.
South Carolina Board of Economic Advisors Chairman John Rainey says the drop in debt has improved personal balance sheets, but hasn’t done a thing for the economy, since consumer spending is weak. Rainey spoke by telephone from Colorado during Thursday’s meeting of the state’s economic forecasters held on the Statehouse grounds.
It’s good news, but potentially not good news. The cards are being paid down so there’s credit available, but are they going to use that credit? Do they have enough confidence in the system, now that they’ve gotten out of the trap a little, to get themselves back in the trap and start spending?
But even with a lower overall household debt, many people are struggling greatly. The Federal Reserve’s report shows that the number of new personal bankruptcies increased 34 percent in the second quarter, much more than a typical seasonal decline of 20 percent. New foreclosures increased 8.7 percent. The nationwide delinquency rate fell for the first time since 2006, but the rate of serious delinquency went up.
On the subject of unemployment, Rainey says he doesn’t expect the state’s 10.8 percent jobless rate to drop back down to five percent again until 2016. That rate was 12 percent one year ago. He says the rate will be fairly flat for a while, and even when it improves greatly, the unemployment base standard will be more like it was in the 1970′s, not the 1990′s. He says certain factors are helping to keep unemployment high. Rainey says development of applied technology is increasing as productivity also increases, which is something he has never seen before–meaning that there is less need for workers. Rainey also notes that some hiring is inhibited due to business apprehension over future taxes and the health care bill.
These things are weighing heavily on businesses, especially small business. And that inhibits hiring. The 10-year government bond is at 260. That means the government can borrow money at 2.6 percent for 10 years. That tells you there is no great borrowing out there, no great demand for money. And until there is a demand for money, you won’t see expansion in the business community. Until there’s expansion, there won’t be many new jobs.
The budget advisors report that the state’s corporate revenues are increasing and that the mortgage interest is the lowest overall since 1960′s levels.
