US Consumer Debt Drags Down Economic Recovery

23 May 2008

NEW YORK: A new report warns that US consumers are so heavily in debt they will be unable to drive the economy out of its current downturn, making recovery a slower process.

A quarterly outlook from financial information provider Moodys and credit search firm Equifax shows consumers had the lowest percentage of unspent cash in the first quarter of 2008 than any time since fall 1991.

Americans put 14.3% of their disposable income toward debt in the first quarter, near the record 14.5% at the end of 2006. In 2000 they put 12.3% of disposable income towards debt.

Before the 1980s, consumer spending comprised about 63% of the nation's GDP. Since then, it has grown to around 70% as consumers shouldered more debt to fuel their buying habits.

Scott Hoyt, senior director of consumer economics at Moody's, predicts consumer spending will drift back to around 67% of GDP as Americans cannot sustain near-zero savings and an ever-growing debt load.

He adds: "Consumers just don't have the cash right now that they had a few years ago. This obviously impacts their ability to spend, their confidence, their ability to service their debt and it's going to continue even as the economy recovers."

Data sourced from; additional content by WARC staff