Moody’s: Consumer Debt Falls to 2006 Levels

by Patrick Brennan

Moody’s Analytics has a new report suggesting that households are a ways along in the process of deleveraging, possibly removing one impediment to a real recovery. The L.A. Times reports:

The amount of home mortgages, credit card debt and most other consumer liabilities now stands on par with 2006 or earlier, according to calculations by Moody’s Analytics. The notable exception is student loans, which have skyrocketed in recent years, with people flooding into schools and college costs soaring.

Overall, households today are paying less than 16% of after-tax income to cover debt payments and lease obligations, the smallest share since 1984, Federal Reserve data show.

Few experts are expecting a big ramp up in people’s spending any time soon: Consumers remain cautious because of what they’ve been through over the last five years and because of uncertainty about what lies ahead. “It’s sort of a new reality that you have,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “We’re going to try to live within our means because living beyond it didn’t work out.”

A massive number of foreclosures and a new frugality on the part of many households have helped reduce liabilities. Now the long process of shedding debt seems about over, and that alone should benefit the economy.

With less debt weighing them down, consumers are feeling more upbeat today than they have in five years, according to the Thomson Reuters/University of Michigan survey of consumers this month. And that could translate into a little more spending and risk-taking.