By  on October 16, 2006

American consumers are racking up debt at an increasing rate, and retailers at all price points could soon start to feel the pinch.

Overall, consumers have $2.35 trillion worth of outstanding debt of all kinds, according to statistics from the Federal Reserve Board. In the aggregate, U.S. households shelled out 13.93 percent of their disposable income during the first quarter to cover mortgage and consumer debt payments, according to the Fed. That's up from 12.88 percent five years ago and 11.86 percent 10 years ago, indicating an acceleration, though the numbers also go up as home ownership increases.

Economists and other analysts differ over how dire a problem consumer debt is and whether the country is looking at a credit crunch with wider fiscal implications in the near future. One thing they can't deny, though, is that consumer spending has been the engine of the U.S. economy over the last 35 years. Any slowdown in expenditures would have significant implications for the overall economy.

And despite concerns over debt, inflation, softening house prices and the trade deficit, Wall Street seems unfazed — the Dow Jones Industrial Average hit a record high Friday of 11,960.51, its sixth record in two weeks.

In addition, most observers remained relatively optimistic about the upcoming holiday season, predicting sales would rise by 5 percent to 7 percent during the period.

And how will many Americans pay for these gifts? With credit, of course.

"We've been in a debt crisis," said Mary Beth Pinto, director of the Center for Credit & Consumer Research at Penn State Erie's Behrend College. "This problem that a lot of Americans face is not getting any better."

Pinto said there is a "blurring between a luxury and a necessity" and a need for financial education at a young age.

"There are 10 [percent] to 15 percent of households who are really living on the edge," said James F. Smith, director of the Center for Business Forecasting at the University of North Carolina at Chapel Hill. "They've got an awful lot of debt in relation to income, and it wouldn't take much — an illness, a divorce, a death, a loss of job or cutback in hours — to throw them over the edge."

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