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Studies Show Consumer Debt Is Dropping

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Many consumers across the country may have seen their finances improve in the last year or two, and many new statistics show just how far those developments are going to boost the economy in general.

Perhaps one of the most important of these factors is the recent data from the Federal Reserve Board, which shows that the amount owed by the average household as a percentage of its total disposable income continues to decline, according to a report from Bloomberg News. In all, this figure shrank to just 113 percent in the second quarter, down considerably from the all-time high of 134 percent observed in 2007, just before the recession began to take hold.

As a consequence, debt payments are also the smallest in 18 years, and delinquency rates on credit cards are near lows not seen since 2008, the report said. However, the current numbers are still well above the 94 percent that has been the average since 1980.

Meanwhile, improving home values seen nationwide drove household net worth as a percentage of income rose to 527 percent between April and June, up from 477 percent in the first quarter of 2009, the report said. That is lower than the all-time record of 652 percent set in 2006, but higher than the average of 515 percent seen in the last 32 years.

These improvements have, in turn, led to more spending on expensive items such as cars and even homes, the report said. New home starts are expected to expand to 900,000 nationwide next year, up from the projected 750,000 this year. Meanwhile, vehicle sales are now expected to hit a seasonally adjusted rate of 14.9 million this year, up from the estimated 14.5 million in August, and the highest number observed since March 2008.

“We are seeing some big-ticket spending,” James Paulsen, chief investment strategist in Minneapolis for Wells Fargo Capital Management, told the news agency. “They are things you don’t see unless you are pretty confident of your balance sheet.”

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Many consumers have also opted to significantly reduce their debts as a result of the hardships they may have suffered during the recession, and making larger payments has helped to eat into their loan principals so that they do not accumulate interest as quickly.

Image: seishin17, via Flickr

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