By Michael S. Derby

(Reuters) -Overall U.S. household debt levels increased modestly in the third quarter as borrowing in some form of trouble stabilized and student loan woes increased, the New York Federal Reserve said on Wednesday.

As part of its latest report on borrowing in the economy, the regional Fed bank said overall borrowing for the third quarter rose 1%, or $197 billion, from the second quarter, to $18.6 trillion. From a year ago, total borrowing was up $642 billion.

Most categories of borrowing increased relative to the second quarter: Mortgage balances were up $137 billion to $13.1 trillion, credit card balances were up $24 billion to $1.23 trillion and student loans increased $15 billion to $1.65 trillion. Auto loan borrowing was stable, the New York Fed reported, at $1.66 trillion.

“Household debt balances are growing at a moderate pace, with delinquency rates stabilizing,” Donghoon Lee, economic research advisor at the New York Fed, said in a press release.

In a call with reporters, a New York Fed researcher added that “if you look at household balance sheets, overall, in the aggregate, they look pretty good, pretty strong.”

But the researcher added that the current state of the economy, which has seen a softening in the labor market, could be an issue going forward. “The big question is, we are seeing some increases in the unemployment rate, especially amongst younger borrowers and as well as Black and Hispanic borrowers, so whether that will translate into kind of a re-start of an increase in delinquency rates, we have to see.”

STRESS RISES ON STUDENT LOANS

The New York Fed’s report said that during the third quarter some 4.5% of all debt was in some form of trouble. Accounts just getting into trouble were mixed across borrowing types, while the share of those getting into serious distress was up across borrowing types outside of mortgage balances.

Student loans, which have been troubled for some time after borrowers were forced to start repaying them, remained a source of trouble and showed the largest transition into serious delinquency during the quarter.

The share of student loan accounts flowing into this status stood at 14.3% during the quarter, up from the 0.77% transition rate seen in the third quarter of last year. For the recent third quarter, 9.4% of total student loan debt was more than 90 days delinquent or in default, compared to 10.2% in the second quarter and 7.8% in the first quarter.

New York Fed researchers cautioned that amid the restart in debt repayments, data detailing conditions in this type of borrowing is in flux.

The U.S. central bank cut interest rates last week to help support the job market as inflation remains above the 2% target. While overall growth remains resilient, there have been rising worries that conditions are being powered by more affluent consumers while lower-income households are struggling in the face of high prices and increased labor market challenges.

Evidence suggests “there’s a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower-cost products, but that at the top, people are spending at the higher income and wealth,” Fed Chair Jerome Powell said in a press conference after the policy meeting.

The New York Fed researcher said the household data points toward a similar finding, noting rising stress for younger borrowers compared to older ones, while older borrowers with home equity and stock holdings “have done very well.”