A Record to Fear?
The total dollar amount of debt held by U.S. households and corporations recently hit a record high. Some are fearful this will lead to a deep recession. While the absolute numbers are high, what may matter most is the ability to repay the debt—the debt service level.​​

Chart for AOM​​

  • The total value of debt among U.S. households and corporations reached a record of $30.9 trillion at the end of 2018, more than twice the level of debt from twenty years prior!

  • However, debt service (the repayment of interest and amortization of principal relative to income) is under 15% of income, which is far below the peaks prior to the past two recessions (18.3% in 4Q07 and 17.3% in 4Q00, respectively). The story is much the same worldwide with Germany, Japan and the U.K. posting debt service ratios that are below their respective averages over the previous two decades.

  • While consumer debt levels appear to be manageable, some new corporate debt has terms reminiscent of previous peaks in lending, which could portend future losses for bondholders.1 Corporate bonds would thus be a poor investment choice. However, aggregate levels of debt service appear manageable for the U.S. economy, which may bode well for the stock market.

1S&P estimates that 85% of all leveraged loans issued last year were “covenant-lite,” meaning lacking traditional requirements to adhere to certain financial metrics.​


The views expressed are the views of Fred Alger Management, Inc. as of July 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

Risk Disclosure: ​Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.​​​​

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