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US household debt relative to disposable income fell again in Q3

by Gabriel Stein

Tue 10 Dec 2013

US household debt relative to disposable income fell again in Q3 Enlarge Chart loading Image

What the chart shows: The chart shows US household debt as per cent of personal disposable income.

Why the chart is important: In Q1 this year, the ratio of US household debt to GDP rose for the first time in four years. As it happened, this was because disposable income fell by more than debt, in turn the result of the fiscal squeeze on households as a temporary cut in payroll taxes was reversed. However in the two quarters since, the debt/income ratio has continued to ease. Happily for the US, this is due to personal disposable income rising faster than the debt. This is good news because it shows that the US recovery has at least achieved traction to the point where households can afford to borrow and spend a little bit more, yet still continue their deleveraging (previously, the fall in the debt/income ratio was due to falling household debt). The US recovery is likely to remain weak for some quarters; but improved household finances show that there is some light at the end of the tunnel.

Chart and comments provided by Stein Brothers (UK) www.steinbrothers.co.uk