Consumers still have a lot of wood to chop

October 7, 2009

What with unemployment climbing, housing as well as equities still well below their peaks and general anxiety about when the economy is going to rebound, it’s good news that consumers are cutting back on credit after binging for years. But Josh Shapiro, economist at MFR Inc, is not impressed.

Since the peak in July 2008, consumer credit outstanding has fallen by $119 billion as households struggle to get their balance sheets in order after asset prices melted down. To put matters into perspective, the Federal Reserve reports that as of the end of Q2, the value of household net worth had plunged by $11 trillion from its peak in Q3 2007 (a staggering sum, equal to almost 80% of nominal GDP). So, while representing a good start, the deleveraging that the household sector has accomplished to date is just that, a start.

You can see the Fed’s data here.


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