“The consumer remains highly leveraged on a historic basis,” she said. “They don’t have the capacity, really, to increase leverage.”
One positive development will be that the pace of fiscal tightening will probably slow, making any contribution from households more meaningful, according to Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. Declines in government spending will trim 0.5 percentage point from gross domestic product in 2014, down from 1.5 percentage points this year, O’Sullivan projects.
With some households more inclined to borrow, the combination will be a boon for economic growth, Moody’s Garber said. He predicts GDP will expand up to 3 percent next year.
“If you reduce the government cutback and then you add in strong rates of consumer borrowing, that’s something that could take us faster than the very sub-par growth that we’ve seen this year,” he said. “Most of the optimism has been shifted to next year’s outlook, and that’ll be on the backs of U.S. consumers.”