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In "Knee-Jerk
Relativism," I highlighted a Philly
Post article detailing how incomplete, inconsistent, or
irrelevant statistical comparisons serve to paint a distorted picture of
where things stand in today's economy.
As it happens,
an article in today's New
York Times, "Debt
Burden Lifting, Consumers Open Wallets a Crack,"
makes what I believe is a similarly misleading claim about Americans'
financial health:
The bursting of
the real estate bubble and the ensuing credit crisis forced American
consumers to do something that they had little experience in trying: reduce
their debt.It has been a painful process both for
borrowers, who have faced foreclosures and bankruptcies, and for lenders,
whose have had to take losses vastly in excess of what they thought possible.
 But
the process is working far faster in the United States than in countries like
Britain and Spain, which also faced plunging real estate prices. And now it
appears to be contributing to an economic recovery that has gained a little
momentum, despite facing headwinds from the European debt crisis. This
week’s report that retail sales grew faster than expected in March was
the latest sign that consumers — or at least a substantial number of
them — are growing more optimistic.
One measure of
the financial health of householders is the level of financial obligations,
like required mortgage and credit card payments, to disposable income. By the
fall of 2007, those obligations took up 14 percent of disposable income, more
than at any time since the Federal Reserve began calculating the statistic in
1980.
But now the
situation has turned around. The latest figures, for the final quarter of
2011, show that required debt service payments now make up just 10.9 percent
of disposable income, the lowest proportion since 1994. A broader measure
— which adds in such obligations as property tax and insurance premiums
for homeowners, and rent for those who do not own their homes — has
fallen to the lowest level since 1984.
While it's all
well and good to say that monthly outlays are less than they were, this
development likely reflects the fact that, thanks to the Fed's machinations,
interest rates are at historic lows, while maturities for certain kinds of
financing, including auto loans, have generally increased as lenders try to
keep payments at manageable levels.
The reality is,
if you compare the financial obligations ratio cited in the Times article to the ratio
of average household debt to median household income, as I've done below,
it's apparent that the financial position of U.S. consumers is not much
better than it was at the credit bubble's peak.
In the end,
it's not just the amount that people shell out each month that matters; the
amount they owe also has a strong, if not stronger, impact on their
willingness to spend. Under the circumstances, I wouldn't hold out much hope
that a consumer recovery is on the way.
Michael J. Panzner
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