Six years after the credit bubble burst, a major headwind for the US economy is finally fading. America’s consumers, who comprise 70% of GDP, have worked off much of their debt and could soon be ready to splash a bit more cash, which bodes well for medium-term growth.
In 2007, household debt as a proportion of disposable income reached 135%. It has since fallen to 109%, notes Deutsche Bank. Disposable income has grown at an annualised rate of 2.8% since 2007 and debt has fallen by 1.1% a year.
The household-debt-to-income ratio has almost fallen back to its long-term trendline, which is now at 105%. That figure could be reached in late 2014.
Meanwhile, household borrowing has stopped falling in recent quarters, suggesting that consumers are becoming more confident and have stopped paying down debt, and may be borrowing again now that the credit squeeze has eased.
It seems that “deleveraging has largely run its course” and growth in the not-too-distant future should no longer be hampered by subdued consumption.