For several years during and after the Great Recession, households sought to reduce their level of debt through a combination of diminished spending and more aggressive repayment. That period of deleveraging of households balance sheets appears to have come to an end. According to Moody’s Analytics, households are no longer collectively reducing their debt obligations. The U.S. household debt service ratio rose to 9.96 percent during the fourth quarter, meaning that household debt payments absorb about 10 percent of disposable income.
Total debt payments have stopped declining and were 1 percent above their year-ago level during last year’s final quarter, the fastest growth registered since 2008. Other household financial obligations are also climbing, including auto lease payments, homeowners’ insurance and property tax payments.
Meanwhile, income growth remains soft. Moody’s expects that employment and income gains will pick up during coming quarters, but that these gains will probably not outpace the growth in debt payments or other household obligations. In other words, household obligations are set to rise, in part because anticipated employment gains will eventually spark additional borrowing.