Consumers Gain Some Ground on Their Fixed Bills
Though off its lows, the financial obligations ratio is still well below average as rates and debt have come down, but rent pressures loom.
Though off its lows, the financial obligations ratio is still well below average as rates and debt have come down, but rent pressures loom.
Bob Johnson: This week's chart shows the financial obligations ratio. This ratio compares your fixed payments--whether they be debt or a mortgage or rent or a car lease--to your disposable income for the overall economy.
As the chart shows, over the last 35 years this ratio has ranged from a high of 18.1% to a low of 15.2%, and the average has been about 16.5%. We're a little bit higher [than the low of 15.2%] right now. We backed up just a little bit, as you can see on the chart, because rents have gone up.
We've had a very favorable situation where debt has come down, and in addition to debt coming down, we've also seen rates come down. Those two combined have really improved this ratio. That is so important, because if you aren't spending the money on debt, you can spend the money on other discretionary items, which helps the entire economy.
As I look forward for this ratio, I think there is some good news and some bad news. Rents, unfortunately, are going to continue to weigh on this ratio; rates are more likely to go up than down from here on out. But on the other hand, incomes are going to begin improving a little bit more dramatically. So I think we are going to stay well under the 16.5% average that we've seen over the last 35 years, but we've probably have seen the best for this recovery.
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