A measure of the burden of US household debt tumbled in the third quarter to its lowest level in 29 years.
The household debt service ratio — an estimate of the share of debt payments to disposable personal income — fell to 10.61 percent from 10.72 percent in the second quarter, the Federal Reserve said yesterday.
It was the lowest level since the fourth quarter of 1983.
“Consumers have more money in their pockets to spend, which should be positive for the economic recovery,” said Gennadiy Goldberg, an economist at TD Securities.
US households built up a massive debt load as the housing bubble expanded and efforts to pay down those debts have been a restraint on spending and the economy’s recovery.
The debt service ratio, a measure that takes into account outstanding mortgage and consumer debt, peaked in the third quarter of 2007, not long before the economy tipped into recession.
The Fed has helped consumers dig out by keeping interest rates near record lows. It has held overnight rates near zero since December 2008 and has bought around $2.4 trillion in bonds to further lower borrowing costs.
Even though households are now in better shape, analysts caution that consumer spending could stall if Congress fails to prevent higher taxes from taking hold next year.
A broader measure of financial obligations that includes automobile lease payments and the cost of renting a home also fell in the third quarter, dropping to 15.74 percent of disposable income — the lowest since the first quarter of 1984.
While a lightening of household debt burden puts the recovery on firmer ground, it also highlights a hesitance to take on new debt, which could hinder the economic expansion going forward.