Accumulating $14 trillion in debt, US enters worst phase of pandemic

American households increased their debt by $155 billion in the first quarter, driven by a surge in mortgage loans, while overall debt levels rose to a new record at $14.3 trillion, according to the Federal Reserve Bank of New York.

It is marked as the 23rd straight quarter of increasing household debt, which is equal to a 1.1 percent rise. 

American households’ current debt is higher than during the 2008 financial crisis, when it was at about  $12.7 trillion. According to experts, this data is a clear sign of an economic recession.

The report was prepared according to the debt and credit data of consumers as of March 31 when the coronavirus pandemic had already arrived in the US, however the country was not the epicentre of the virus.

Since that time, American citizens have suffered more from the coronavirus in terms of health and economy.

Mortgage borrowing reached $9.71 trillion, increasing by $156 billion. For mortgage borrowers, the median Equifax Risk Score, which means the lower score equals high-risk for delinquency, is increased.

Andrew Haughwout, a senior vice president at the New York Fed, said: "It is critical to note that the latest report reflects a time when many of the economic effects of the Covid-19 pandemic were only starting to be felt.

"We will continue to monitor these developments and the broader state of household balance sheets closely as key data are updated and the economic situation evolves."

Before starting the second quarter of the year, American households have $3 trillion in credit card debt. The lockdown period will further increase household and credit card debts as they cover their spending by cards while most parts of the US economy are shut down due to the pandemic.

Lenders have tightened credit payment conditions in recent months, where credit card delinquencies have past 9 percent, which is the highest number of the last two years.

Increasing unemployment rate 

White House economic adviser Kevin Hassett said the unemployment rate of the country was above 16 percent in April when the coronavirus pandemic was devastating the country’s economy. 

“My guess right now is it’s going to be north of 16 percent, maybe as high as 20 percent,” Hassett said in an interview with CNN about the unemployment rate the federal government will report on Friday. 

“So we are looking at probably the worst unemployment rate since the Great Depression. It’s a tremendous negative shock, a very, very terrible shock.”

Economists polled by Reuters forecast the official government report to show last month’s unemployment rate was 16 percent and that more than 20 million jobs were lost. But economists at the Federal Reserve Bank of Chicago are estimating that the true rate could be between 25.1percent and 34.6 percent.