U.S. Consumers’ Debts Get More Affordable
Economists and investors are justifiably concerned about U.S. consumers? weighty debt burdens, with some saying it could take years before they?ve shed sufficient debt to place them in a spending mood again. By one measure, though, they?re looking as financially sound as they have in nearly a decade.
The Federal Reserve?s financial obligation ratio tracks how much the average American must cough up every month for rent and payments on credits cards and mortgages, as a percentage of disposable returns. The ratio fell to 17.51% in the fourth quarter of 2009, down from a peak of 18.87% in ahead of schedule 2008 and the lowest level since the third quarter of 2000.
The diminishing ratio isn?t all excellent news: In large part, it reflects the extent to which people have been non-payment on mortgage and credit-card debt. But it also suggests that U.S. consumers? mountain of outstanding debt — which stood at 122.5% of once a year disposable returns as of the end of 2009 — might be more sustainable than its sheer size suggests, particularly if people have used this period of low long-term interest rates to refinance into fixed-rate mortgages.
To be sure, a return to the wicked spending of the boom years wouldn’t be the best foundation for a recovery, and the U.S. government?s on the rise debts are more than making up for any improvement among consumers. But with their monthly cash flow improving, U.S. consumers might hit the mall again sooner than many expect.