Finally, Some Good News: US Household Debt Burden Hits Record Low

A measure of the burden of U.S. household debt sank to a record low in the fourth quarter, offering more evidence of improving household finances that should lend support to consumer spending and the economy.
The household debt-service ratio – an estimate of the share of debt payments to disposable personal income – fell to 10.38 percent, the Federal Reserve said on Wednesday.

That was the lowest since the series started in 1980. In comparison, the ratio, which takes into account outstanding mortgage and consumer debt, was 10.56 percent in the third quarter. It peaked in the third quarter of 2007, shortly before the U.S. economy fell into recession.

“Household balance sheets are improving and that lays the foundation for more spending, which in turn can lead to a virtuous cycle of more business investment and hopefully more jobs,” said Dana Saporta, director of U.S. economics research at Credit Suisse in New York.

U.S. households built up a massive debt load as the housing bubble expanded. Efforts to pay down those debts have been a restraint on spending and the economy’s recovery.

Now, it appears that process of deleveraging may have run its course. Data from the Fed last week showed household debt rose at a 2.5 percent annual rate in the fourth quarter, the fastest since early 2008, while a report last month from the New York Federal Reserve Bank said consumer debt rose in the last three months of 2012 for the first time in four years.

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