You choose, we deliver
If you are interested in this story, you might be interested in others from The Journal Gazette. Go to www.journalgazette.net/newsletter and pick the subjects you care most about. We'll deliver your customized daily news report at 3 a.m. Fort Wayne time, right to your email.
Advertisement

Lower debt load helping buoy economy

– Anita Bullock-Morley was $57,000 in debt on 27 credit cards and close to filing for bankruptcy in 2007.

With help from an Atlanta counseling service, the 37-year-old says, she paid about $1,400 a month and cleared her balances. Now she’s used cash to buy an $800 iPad and upgrade her iPhone.

Three-plus years into a recovery from the worst financial crisis since the Great Depression, Americans finally are getting their finances back into shape, Federal Reserve figures show.

Household debt as a share of disposable income sank to 113 percent in the second quarter from a record high of 134 percent in 2007 before the recession hit. Debt payments on that basis are the smallest in almost 18 years, while the delinquency rate for credit cards is the lowest since the end of 2008.

“The household deleveraging process is largely over,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Penn. “Credit use should soon go from being a significant headwind to the economy to a tailwind.”

The progress that consumers have been making will allow gross domestic product to absorb stepped-up deficit reduction by the federal government next year and keep on expanding, Zandi said.

He sees GDP growing 2.1 percent in 2013, a bit slower than this year’s projected 2.2 percent, as Congress allows some, but not all, of the scheduled year-end tax increases and spending cuts to go ahead.

The GDP number will mask stronger growth for the private side of the economy, to 3.6 percent from 3.1 percent, he said.

In a sign of consumer resilience, retail sales rose 1.1 percent last month after advancing 1.2 percent in August, the biggest back-to-back monthly increase since late 2010, according to Commerce Department figures released last week in Washington.

The improvement in consumption will lead to higher valuations for “riskier assets,” including U.S. and emerging- market stocks, said James Paulsen, chief investment strategist in Minneapolis for Wells Capital Management.

“The financial sector is the biggest beneficiary,” Paulsen said, referring to the shares of banks, insurers and investment companies. Their valuations have been based “on a rear-view mirror looking at the past five years and not looking ahead.”

Advertisement