Do households have more breathing room?

Date posted: January 21, 2014

Household spending accounts for almost 70 percent of the nation’s economic activity. But before the recession, households were overloaded with debt and payments on that debt. But N.C. State University economist Mike Walden says conditions have improved tremendously.

“Housebold debt is now down by over $1 trillion over the last five years. Now, this is, quite frankly, a combination of people tightening their belts, paying down on their debt, but also some folks having to file for bankruptcy.

“But perhaps the most important measure of how burdensome debt is is to look at the percentage of a household’s income — actually disposable income after taxes — that they have to use to make their debt payments. That percentage … actually rose to a record high of 17 percent right before the recession hit. It is now down to 13 percent, and … that 13 percent is the lowest rate in 25 years.

“And what this means is, for the average household, they’re not having to push as much money into that envelope that’s going for debt payments. They now have more money freed up and, again, for some economists, that, they think, is going to be a big reason why consumer spending is going to propel the economy to new heights in 2014.”

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