American Households Are Entering a Debt Trap

American households seem to have short financial memories. Either not having learned—or perhaps just not remembering—the lessons of the global financial crisis of 2008–09, many U.S. households are repeating the same mistakes made more than 15 years ago. Specifically, they are aggressively spending and piling on debt just at the moment when they should be prudently cutting back on both.

Personal consumption expenditures of goods increased 3.8 percent in the fourth quarter, outpacing overall U.S. gross domestic product (GDP) growth of 3.3 percent. There is nothing inherently wrong with spending more if rising income can support it, but this is not what is happening. According to data from the Bureau of Economic Analysis, in 2023 personal spending grew at more than twice the rate of personal income.

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