Something Big Just Changed in the US Economy

The US economy is experiencing a significant increase in leverage, a trend that began in the third quarter of 2023 and continued into the fourth quarter. This surge in borrowing is driven by both the corporate and household sectors. Corporations increased their debt by $1.1 trillion in Q4 2023, following a $700 billion rise in Q3. This marks the fastest pace of corporate borrowing since 2019. The household sector also contributed to this leverage-up trend, with a $270 billion increase in debt in Q4 2023, primarily in the form of student loans and auto loans. Mortgage debt saw a slight decrease of $10 billion during the same period. This overall increase in leverage is occurring despite higher interest rates, with the Federal Reserve maintaining its benchmark interest rate between 5.25% and 5.50% since July 2023. The rise in leverage suggests a potential shift in economic sentiment, with borrowers becoming more optimistic about future economic conditions and their ability to service debt.