Thursday, June 7, 2012

Consumer De-Leveraging?

Maybe, maybe not.  The media is reporting that the consumer is "de-leveraging" per the Fed's latest "Z-1" flow of funds report (quarterly).  You can look at pretty graphs here:  LINK

Let's get one thing straight.  On the surface, the numbers may make it look like the consumer is reducing it's debt load.  But we need to see more data about where this "de-leveraging" is coming from.  Given that banks are processing a voluminous number of foreclosures, short sales and credit card charge-offs, I would bet a lot of money that the source of this "de-leveraging" is the banks writing off bad consumer debt.

In other words, on the surface the news about consumers might appear positive.  However, I'm sure a deeper analysis beyond regurgitating the headline statistics would likely show continued decay in the financial health of the average American household, and therefore the economy.  One metric that would be of better use than grabbing macro numbers from the Z-1 report would be to look at household debt as a percent of personal income, after subtracting Government transfer payments from the personal income number.  Think about that one, given that we know that personal income net of Government entitlements is declining.


  1. Per Z1, all of the household sector deleveraging since the sector high of Q1 2008 has come from mortgage debt reduction. There was a small decline in consumer credit, but it has been increasing since Q3 2010 and is now back up to 2008 levels.

  2. You may find THIS link of interest.