February 10, 2022
Consumer loans plunged in April and May of 2020 (the blue bars) as the economy stopped dead in its tracks following the imposition of very restrictive measures to combat the spread of the corona virus. At the same time the federal government passed $2.5 trillion of fiscal stimulus which included the first round of $1,200 checks to consumers n April. Because the economy was essentially shut down, the consumers had nowhere to spend it. As a result, the savings rate skyrocketed to 33%. Flush with cash and no place to spend it many consumers opted to pay down debt. As the economy has opened up consumer loans have grown at a moderate pace.
Given the extensive amount of debt repayment last year and interest rates at a record low level, the consumers financial obligations ratio reached a record low level of 12.6% in the first quarter of last year and has risen only slightly since. This measure includes mortgage loans, rent payments, auto lease payments, autos loans, homeowner’s insurance, property tax payments, and personal loans as a percent of income. Prior to the 2008-09 recession this ratio stood at a record high level of 18.1%. The consumer was highly leveraged at that time. That is not the case today.
Finally, consumers net worth has increased dramatically in recent quarters drive by the increase in stock prices and the increase in house prices and now stands at a record high level.. The consumer is in extremely good financial shape.