Story first appeared on USA Today.
Households have whittled down the massive debt they racked up in the mid-2000s credit bubble, but apparently not enough to nudge them into a spending binge that could jump-start the recovery, some economists say.
Household debt is closely watched by economists because consumers burdened by big monthly payments for mortgage, credit card and student loan obligations are less likely to splurge on clothing, furniture and travel. And consumer spending makes up about 70% of the economy.
Many economists expect the government to report Friday that the economy grew at a moderate 2.5% to 3% annual rate in the first quarter, driven largely by exports and business investment. Consumer spending likely rose a more modest 2.1%, according to IHS Global Insight.
One reason consumer purchases have not taken off is high debt. Consumers have worked hard to pay off credit card, mortgage and other debt in recent years. Total mortgage and other consumer liabilities have fallen from a record 123% of disposable income in late 2007 to 105% in the fourth quarter, according to the Federal Reserve and IHS.
Yet the decline masks key areas of concern. Student loan debt increased $117 billion last year to a record $1 trillion, according to the Consumer Financial Protection Bureau. Many Americans are staying in school or returning to bolster their skills amid a bruising job market.
Mounting student loans are burdening young workers who are key to overall spending. Rising debt, as well as poor job prospects, have prompted many to put off marriage and live at home longer, dampening household formation and furniture purchases. More than 80% of 18-to-34-year-olds who took out college loans still have a balance, and more than a third of those owe more than $20,000, says a CouponCabin.com survey released this week.
Mortgage debt, meanwhile, has dropped more than 7% since early 2008. But consumers who owe more than their homes are worth are still burdened by high debt and have cut spending as a result, according to a report last month by the Brookings Institution.
Credit card spending picked up late last year, helping fuel strong holiday sales. But with wage growth still tepid, such purchases declined in January and February.
For more national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
