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U.S. business debt exceeded that of households for the first time since 1991, a potential warning sign for the economy as corporate investment softens.
Nonfinancial companies boosted debt at a faster 5.7% annual pace in the third quarter to a total outstanding $15.987 trillion, while household borrowing slowed to a 3.3% rise to reach $15.986 trillion, Federal Reserve data showed Thursday. Federal government debt climbed 10.4%, the most since early 2018, to $18.9 trillion.
With the record-long expansion in its 11th year, Fed policy makers have indicated in recent months that they’re watching the corporate debt situation closely. Chairman Jerome Powell said in October that “leverage among corporations and other forms of business, private businesses, is historically high. We’ve been monitoring it carefully and taking appropriate steps.”
Powell also said at the time that “in the aggregate, the household sector is in a very good place.”
Corporate debt has ballooned with business investment declining for two straight quarters. While business investment has historically climbed when borrowing rose, companies now are increasingly using that credit to return money to investors.