American consumers’ finances are strong, despite what you may have read.

The U.S. economy has a ton of problems to worry about, but there’s one part that’s solid: The 122 million households whose work, earnings, spending, saving and borrowing account for the bulk of U.S. economic activity.

The retail sales report released Thursday is just another data point that shows households are in good shape. Spending is robust despite the worrisome headwinds from trade tensions and financial-market anxieties

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Of course, some families aren’t doing well. Many struggle to pay the bills. Wages haven’t grown as fast as CEO pay or profits or productivity. Essential services like housing, health care, child care and education are out of reach for too many Americans.

Households have deleveraged like mad, but the debt scolds in the financial media won’t give them any credit! So to speak.

However, most Americans are better off now than they were 10 years ago, or even a few years ago. The finances of American households are strong.

Fighting the last war

But that’s not what a lot of people think. More than a decade after a massive credit orgy by households brought down the U.S. and global economies, lots of people are convinced that households are still borrowing so much money that it will inevitably crash the economy.

Those critics see a consumer debt bomb growing again. But they are wrong.

Like the proverbial generals who always look backward, lots of journalists and politicians are fighting the last war. And so we see ridiculous headlines like these:

• U.S. mortgage debt hits record, eclipsing 2008 peak

• A staggering number of Americans now say they may miss a credit card payment this year

• More people are getting into debt and unable to repay their loans

• The coming economic crash — and how to stop it

• Consumer debt is at an all-time high. Should banks be worried?

Debt burdens are low

These stories are either completely wrong or wildly misleading. In reality, by almost any proper measure you can think of, household debt burdens are the lowest in years.

The Federal Reserve publishes the most accurate and reliable data on consumer debt. Earlier this week, the New York Federal Reserve Bank released its report on household debt covering the April-through-June quarter.

While there are pockets of concern — such as student-loan debt levels and defaults, and a slight uptick in new bankruptcies — the report showed that households, in the aggregate, aren’t overextended with debt.

In nominal terms, the debt level reached a record high of $13.86 trillion (big, scary number alert!), but a record is not unusual in an economy that has a little bit of inflation and a little bit of growth.

In real terms (that is, adjusted for inflation), per capita debt levels are up only 1.3% in the past year and are down nearly 19% from the peak in 2008. Since bottoming nearly six years ago, real per capita debts are up just 4.5%. Compare that to the orgy of debt in first decade of this century.

The ratio of debt to disposable income shows the same improvement in household finances since the Great Recession — down to 84.6% of annual income compared with 116.3% in the dark days of 2008 and 2009.

Deleveraging like mad

Households have deleveraged like mad, but the debt scolds in the financial media won’t give them any credit! So to speak.

Consumer spending rose at a stellar 4.3% annual pace in the second quarter, leading some analysts to speculate that consumers must have put all the new spending on the credit card. They didn’t. Credit-card balances were lower on June 30 than they were on Dec. 31.

Mortgage debt rose at the fastest pace since the crisis, but that’s probably a positive sign, given the pent-up demand for owner-occupied homes. Mortgage rates are low, and going lower. Nobody is taking out a loan they cannot repay. Very few are withdrawing equity from their home to splurge on vacations, yachts and bitcoin.

Student loan balances actually fell slightly during the quarter.

But what about the surge of bankruptcies that’s been reported? Or all the people who are suddenly finding themselves unable to pay their debts? Exaggerated.

New consumer bankruptcies rose slightly, as they do every second quarter, to 232,000. Bankruptcy filings have been steady for four years. The level is about a third of the peak in 2010. Foreclosures are the lowest on record.

The number of credit accounts moving into delinquency is steady and low. The percentage of consumers who expect to miss a required minimum payment hasn’t surged in recent months, contrary to reports.

Indeed, with interest rates so low and incomes growing nicely, it’s much easier for consumers to service their debts now than at any time since the 1970s. According to the Fed, it takes an average of 9.9% of disposable income to service debts, down from 13.2% in 2008.

Fear and moralizing

Why is there so much misinformation about household debt? I attribute it to two main factors:

1. Stories that scare people get more readers than stories that say everything is OK.

2. Debt is seen as a moral issue. Many people who write about personal finance topics think all debt is sinful. Many readers agree (especially about other people’s debts).

I’ll let economist Richard Moody of Regions Financial sum it up.

“The bottom line is that, while by no means pristine, household balance sheets are in better condition than has been the case for quite some time,” he wrote in a note to his clients. “One non-trivial implication is that when the current cycle does come to an end, it is highly unlikely that credit conditions in the household sector will be the trigger.”

The strength of the American consumer probably could not keep the world, or the United States, out of recession if business confidence erodes enough. Consumers, after all, depend on jobs for their incomes, and if companies begin to lay off millions of workers, there is no way that consumer finances will remain strong.

But if you are looking for the catalyst for the next downturn, don’t look at the American consumer. This time, we didn’t start the fire.

Rex Nutting is a MarketWatch columnist.

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