Historically, consumers make a big effort to reduce their debt loads after a financial crisis. That means little spending and no economic growth. In some cases, and in some countries, the process can take 10 years or more, but a recent chart by McKinsey Global Institute shows the picture in the United States is better. It’s not because consumers are spending yet, but because they have been saving and paying off debt.
Before 2008, Americans had increased their debt loads steadily for six decades, bringing debt to 129 percent of disposable household income. By 2013, the experts say household debt will be about 103 percent of disposable income. That will be only five years after the financial crisis.
The housing market is picking up. More homes are tending to be occupied. Housing starts are expected to jump about 15 percent in 2013. A report from the International Monetary Fund shows that homeowners have been spending 30 percent less on home maintenance and improvements in recent years. That seriously affects American corporations that manufacture appliances and goods, as well as stores that sell these products, including Lowe’s, Pottery Barn and Walmart.
Monetary Fund research shows that the majority of job losses during the recession were due to lower consumer spending because of household debt. Will Americans be able to step up and become buyers again? Analysts, as you might expect, disagree. Economist James Doti warns that economic growth remains anemic. Doti says tax increases in January 2013 would drain $600 billion from the economy and further decrease growth.
What are your thoughts? Will their be growth soon? How has this had an impact on your business?