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Vulnerabilities arising from business debt remain elevated, although they have fallen since the middle of last year. Business debt outstanding changed very little in the second half of 2020, and recovering earnings and the low level of interest rates have generally aided businesses’ ability to carry debt. Smaller businesses, some of which continue to face significant financial strains, have been supported by government programs, including the Paycheck Protection Program (PPP), which was bolstered in part by funding from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (PPPLF).

Vulnerabilities arising from household debt are modest. Household borrowing has remained heavily concentrated among borrowers with high credit scores. Government actions taken in response to the pandemic have provided significant support to household balance sheets and incomes, with many households saving more and holding more liquid assets. Still, some households continue to face significant financial stresses.

Table 2 shows the amounts outstanding and recent historical growth rates of forms of debt owed by nonfinancial businesses and households as of the end of 2020. Total outstanding private credit was split about evenly between businesses and households, with businesses owing $17.7 trillion and households owing $16.6 trillion. While business debt increased 9.1 percent, on net, over 2020, roughly one-third, or about $425 billion, of this net increase consists of outstanding PPP loans that may be forgiven over coming quarters.

Table 2. Outstanding Amounts of Nonfinancial Business and Household Credit

Note: The data extend through 2020:Q4. Growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. The table reports the main components of corporate business credit, total household credit, and consumer credit. Other, smaller components are not reported. The commercial real estate (CRE) row shows CRE debt owed by both corporate and noncorporate businesses. The total household-sector credit includes debt owed by other entities, such as nonprofit organizations. GDP is gross domestic product.

* Leveraged loans included in this table are an estimate of the leveraged loans that are made to nonfinancial businesses only and do not include the small amount of leveraged loans outstanding for financial businesses. The amount outstanding shows institutional leveraged loans and generally excludes loan commitments held by banks. For example, lines of credit are generally excluded from this measure. The average annual growth rate shown for leveraged loans is computed from 2000 to 2020:Q4, as this .

Source: For leveraged loans, SP Global, Leveraged Commentary Data; for GDP, Bureau of Economic Analysis, national income and product accounts; for all other items, Federal Reserve Board, Statistical Release Z.1, „Financial Accounts of the United States.”

The ratio of total nonfinancial debt to gross domestic product remains above its trend

For several years before the pandemic, the combined total debt owed by businesses and households grew at a pace similar to that of nominal GDP. In the first half of 2020, strong business borrowing and a precipitous drop in GDP pushed the credit-to-GDP ratio to historical highs. In the second half of 2020, this ratio fell markedly, as GDP partially rebounded and business debt was little changed (figure 2-1). The household debt-to-GDP ratio also declined sharply later in the year, returning to its pre-pandemic range (figure 2-2).

2-1. Private Nonfinancial-Sector Credit-to-GDP Ratio

Note: The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): January 1980–July 1980, ––present. As of the publication of this report, the NBER has not declared an end to the current recession. GDP is gross domestic product.

Source: Federal Reserve Board staff calculations based on Bureau of Economic Analysis, national income and product accounts, and Federal Reserve Board, Statistical Release Z.1, „Financial Accounts of the United States.”

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