Heavy Debt Loads May Be Holding Down Consumer Spending - USATODAY.com
Households have whittled down the massive debt they racked up in the mid-2000s credit bubble, but apparently not enough to nudge them into a spending binge that could jump-start the recovery, some economists say.
Household debt is closely watched by economists because consumers burdened by big monthly payments for mortgage, credit card and student loan obligations are less likely to splurge on clothing, furniture and travel. And consumer spending makes up about 70% of the economy.
Many economists expect the government to report Friday that the economy grew at a moderate 2.5% to 3% annual rate in the first quarter, driven largely by exports and business investment. Consumer spending likely rose a more modest 2.1%, according to IHS Global Insight.
One reason consumer purchases have not taken off is high debt. Consumers have worked hard to pay off credit card, mortgage and other debt in recent years. Total mortgage and other consumer liabilities have fallen from a record 123% of disposable income in late 2007 to 105% in the fourth quarter, according to the Federal Reserve and IHS.
Yet the decline masks key areas of concern. Student loan debt increased $117 billion last year to a record $1 trillion, according to the Consumer Financial Protection Bureau. Many Americans are staying in school or returning to bolster their skills amid a bruising job market.