Household debt levels in the U.S. climbed for the first time in roughly three and a half years during the fourth quarter, suggesting consumers are more willing to seek loans and credit cards to finance their budgets. This has been reflected in recent gains in consumer confidence and spending activity. According to data released Thursday by the Federal Reserve, household debt edged up 0.3 percent in the October-December period, stemming 13 consecutive quarters of contraction. Consumer credit
increased by an annualized rate of 7 percent during the same period. Household wealth climbed by $1.2 trillion as well, which could help support spending trends. Furthermore, the ratio of household debt to after-tax income dropped to the lowest level since 2004. With recent gains in employment and spending, the report suggests Americans are confident in their finances and now taking on new auto loans, credit cards, mortgages and student debt to cover costs. While strong gains in vehicle financing have reflected the recent momentum of the U.S. auto industry, student debt may be reaching a crisis level. The New York Federal Reserve recently reported that the total volume of U.S. student debt is now greater than that of credit cards and auto loans. The problem is exacerbated by high unemployment. "The returns on these loans for many students have been disappointing as jobs remain hard to find and salaries grow meagerly," Paul Edelstein, director of financial economics at IHS Global Insight, told MarketWatch. The point is further illuminated by the mortgage debt level, which fell 1.5 percent in the fourth quarter - the smallest decline since the end of 2009. "Aggregate mortgage credit will continue to decline until home sales pick up," Edelstein added. "Recent job creation and declines in the unemployment rate bring that date closer into view, but the housing market still has a long way to go to return to normalcy." Lenders have adopted stringent consumer credit risk management practices to hedge against risky loans, such as those that led to the housing bubble and the ensuing collapse of financial markets in 2008. Non-financial corporate businesses held $2.233 trillion in liquid assets at the end of the fourth quarter, up from $2.120 trillion in the previous period.