US economy finally seems to be on the rise – Is yours?

Debts are being paid off - At least, that’s what the statistics show. The Federal Reserve estimates show that the household debt-service ratio fell down to 10.38 percent. This shows promise, since the ratio points out the share of debt payments to the disposable personal income of the US citizens.

The reason behind 2008 economy collapse

The economy collapse in 2008 was mostly due to the result of increasing consumer debt. As the household debt rose over a period of 3 years, the economy suffered. That’s because the consumers were more intent on paying off their outstanding dues, and in the effort, they stopped spending on the commodities, products and services. As large portions of their income were channelized to pay off their bills, the market suffered huge losses. The corporations had to downsize to survive in the market, which resulted in further unemployment and losses.

The Silver Lining

Over the last 5 or 6 years, household debts have reduced considerably, as the reports reveal. The efforts of the individuals have paid off as they had tried to get rid of the outstanding dues through consolidation, settlement, restructuring, refinancing or through loan default. The debt burden has become considerably lower than what it had been previously.

This raises optimism in the market. Consumers will now have more disposable income for spending, which was being used until now to make interest payments on the outstanding loan balances. As a greater percentage of their income will be devoted to spending again, the economy is expected to improve. Consequently, new job opportunities will open up which will bring down the unemployment rate in the US. Dana Saporta, the Director of the US economics research at Credit Suisse in NY holds the same view, as she has pointed out, "Household balance sheets are improving and that lays the foundation for more spending, which in turn can lead to a virtuous cycle of more business investment and hopefully more jobs."

Economists are of the opinion that the country has added around 152,000 job opportunities in February 2013 itself. The unemployment rate also dipped to 7.8 percent. The Labor Department has also pointed out that US citizens seeking unemployment aid have reduced by around 7000, in the last week of February 2013.

How the Fed plays its role?

US Central Bank allows minimal interest rates to lower borrowing costs for the consumers. This is expected to promote further economic growth, since debt-free consumers will be able to spend without restrain and take out more loans in the future.

However, the estimated drop might be overstated. The report took into account all of the debtors and didn't classify the consumers as those who have paid their respective creditors and those who have lost access to credit after the creditors foreclosed on their property.

  • expertise badge
  • TrustLink logoTrustLink logo
  • Customer ratings on BBB
  • IAPDA logo
  • Calchamber Member
  • Calbar Registered
  • D&B
  • Trustpilot
  • yelp logo