Soaring Household Debt Is a Warning to the US Economy: SocGen

America’s swelling debt pile bodes ill for the the US economy, Société Générale said.

In a recent note to clients, the European Bank flagged a concerning trend that’s taken hold in the US in recent years: the rise in household debt and the concurrent decline in household savings.

Total liabilities among US households swelled to a record $19.9 trillion at the end of the first quarter, according to Fed data, a sign that Americans are continuing to borrow and fund their spending.

Yet, the personal savings rate is hovering near a record low, shrinking to 2.6% in April, according to the Bureau of Economic Analysis.

The trend might be the result of the so-called wealth effect, a phenomenon where Americans spend more because they feel wealthier as the price of assets like stocks and real estate rise, Albert Edwards, a SocGen strategist and famed market permabear, said.

The market has soared amid the unrelenting enthusiasm for AI, with the tech trade making a red-hot comeback after stumbling earlier this year.

The problem is that, if one assumes consumers are shelling out more due to their rising wealth on paper, economic growth is increasingly exposed to the AI trade. Consumer spending makes up around 70% of US GDP, according to one analysis from the Boston Fed last year.

Measures of household income growth, meanwhile, have started to fall. Personal income excluding transfers contracted $16.5 trillion in April, down around $200 billion from its peak in 2025.

“The US consumer currently resembles the Wile E. Coyote character, running off the cliff and suspended in thin air briefly, before collapsing,” Edwards said, referring to the potential for consumer spending to see a sharp drop if Americans were motivated to save more, such as if stock prices were to take a beating.

“It doesn’t take a Fed PhD economist to tell us that if the US saving ratio (SR) stops falling, consumer spending will grow in line with income, which is falling. And woe betide the economy if the SR actually rises back to more normal levels,” he added.

Edwards also pointed to the declining efficiency of debt to boost economic growth. The credit intensity of GDP — a measure of how much debt is needed to boost GDP growth by a set unit — rose to 3.73 last year, the most debt needed to fuel growth in at least the last 70 years, according to an analysis from Bespoke Investment.

“This makes the economy all the more vulnerable should investors doubt the pot of gold at the end of the AI rainbow. Watch this debt-laden space,” Edwards added.