REPORT: U.S. households are borrowing to cover high spending levels

Consumer spending may be soaring, but Americans’ purchases are not being financed with savings or disposable income. It is being fueled by borrowing, according to a new report by Wells Fargo.

In recent months, consumer spending has been accelerating, buoyed by growing confidence among Americans. Unfortunately, writes analysts John McElravey and Ryan Brinkoetter, debt levels are rising, and saving rates are plummeting.

These are ingredients for a recipe of disaster.

“Debt may be filling the gap for many households when incomes have not kept pace with rising living expenses,” the analysts wrote. “A reversal may be ahead if income growth does not catch up to consumer expectations.”

Debt will certainly be a significant risk in the next recession. Both governments and consumers are too much in debt to try to “rescue” the economy when the next crash occurs.