Suffering from a debt hangover for the past four years, Americans will resort to a time-honored cure -- hair of the dog that bit them. A pickup in borrowing will give the world’s biggest economy a much-needed boost next year as federal government austerity pinches growth.
Workers will be more willing to take out loans as the lowest unemployment rate in almost five years bolsters job security, while banks will be more likely to lend after cleaning up their own balance sheets. The resulting gains in personal spending will help counter the effects of federal-budget cuts that are weighing on the expansion, according to Ben Garber, an economist at Moody’s Capital Markets Research Inc. in New York.
“Consumers taking on more debt at a time when the deficit is shrinking would be a strong positive for the economy,” Garber said. “This will help offset some of the fiscal austerity that we’re experiencing.”
Federal outlays relative to the size of the economy declined to 22 percent in 2012, the smallest since 2008, according to figures from the Congressional Budget Office. It projects the share will drop over the subsequent five fiscal years, reaching 20.6 percent in 2017.
While the government is just beginning to cut back, consumers are well on the road to recovery and will be in position to take up the slack, Garber said. Household debt as a share of income was 92.2 percent last quarter, a decade low and down from its peak of 114 percent in 2009.
The debt-service ratio, which measures how much income is devoted to paying off obligations, has also steadied after dropping last year to a record low.
That debt load probably won’t get much lighter as Americans have already come around to using credit to buy automobiles, homes and other big-ticket items, Garber said.
Thomas Nitzsche says that while he’s become more frugal, he’s beginning to feel more comfortable about borrowing and spending than in years past.
When he was let go from his job in a Western Union Financial Services Inc. call center in July 2008, Nitzsche had about $190,000 in combined mortgage, credit card, auto and student loan debt.
“It’s terrifying,” said Nitzsche, 34, who bought his home in St. Louis in 2007, the same year the U.S. entered a recession. “It was definitely scary, but I was pretty determined to do whatever I could do to not go down that path of bankruptcy.”