• 683 days Will The ECB Continue To Hike Rates?
  • 683 days Forbes: Aramco Remains Largest Company In The Middle East
  • 685 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,085 days Could Crypto Overtake Traditional Investment?
  • 1,090 days Americans Still Quitting Jobs At Record Pace
  • 1,092 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,095 days Is The Dollar Too Strong?
  • 1,095 days Big Tech Disappoints Investors on Earnings Calls
  • 1,096 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,098 days China Is Quietly Trying To Distance Itself From Russia
  • 1,098 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,102 days Crypto Investors Won Big In 2021
  • 1,102 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,103 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,105 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,106 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,109 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,110 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,110 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,112 days Are NFTs About To Take Over Gaming?
The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Household Debt Service Ratio Hits New Record High

The retail sales data for June and for the second quarter as a whole indicate that the U.S. consumer spending binge is winding down. One factor that may finally be curbing additional consumer spending is the rising household debt-service burden - i.e., required principal and interest payments as a percent of disposable (after-tax) income. The chart below shows that the household debt-service burden hit a new record high of 13.93% in Q1:2006. We suppose it is no wonder that the debt-service burden is on the rise given the behavior of the other variable plotted in the chart - household credit market borrowing as a percent of disposable personal income. This ratio has been trending higher since 2000, the beginning of the housing boom. Low financing rates mitigated the debt-service burden for a while even as household borrowing exploded. But with the Fed having raised the funds rate by 425 basis points in a 25-month span - the largest 25-month funds rate increase since the Volcker era - the combination of rapid borrowing and rising financing rates is pushing up the debt-service burden at a faster rate. With employment growth slowing, which will retard growth in disposable personal income, and a massive amount of mortgage debt subject to interest rate resets this year and next, the household debt-service ratio is destined to reach even higher levels as we go forward. In turn, this will be a significant headwind to consumer spending. But don't worry. I'm sure corporations will be stepping up their capital spending as their customers are slashing their spending. At least, that's the conventional wisdom.

 

Back to homepage

Leave a comment

Leave a comment