From Keeping Up with the Joneses to Keeping Above Water: The Status of the US Consumer

From Keeping Up with the Joneses to Keeping Above Water: The Status of the US Consumer – A Publication of the BlackRock Investment Institute, September 2011

  • “There are several metrics that can be used to attempt to gauge the level of consumer leverage, each with its own idiosyncrasies, but to establish a benchmark, in this case analogous to the Debt-to-GDP ratio of the United States; we think the use of a household’s stock of outstanding debt divided by its flow of income is most appropriate. A related measure of consumer financial health we shall also discuss is the Federal Reserve’s Household Debt Service Ratio (DSR), which measures a household’s financing costs and principal repayment as a percentage of its cash flow, or essentially the share of income required to maintain existing debt levels. The DSR has several shortcomings as a measure of household sector leverage, including the fact that many exogenous factors, such as market interest rates, credit availability, and credit liquidity will ultimately determine the true debt burden of the consumer.”
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