Personal Income Fails To Keep Pace With Debt

Armen Hareyan's picture
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As the government's debt grows and consumers increase their debt service ratios, the question looms: How long can the spending continue without severe consequences? The current issue of the Western Blue Chip Economic Forecast examines the issues surrounding this question.

"A look at household debt service payments as a percent of disposable personal income reveals that consumers are feeling a much harder pinch in the budget than they have during past recoveries," says Dawn McLaren, an economist with the Bank One Economic Outlook Center and editor of the Western Blue Chip. "While rising housing price valuations may offset some of the uneasy feeling about these debt burdens, there is widespread uncertainty about the exuberance in the real estate market limits."

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Mortgage debt payments as a percent of disposable personal income also have risen sharply over the last two years, according to McLaren. The last time such a ratio of mortgage debt payments occurred was in the second quarter of 1991. "The economy, while not in high gear, is still in a growth cycle. As long as this continues, the likelihood of problems is minimal. If the economy should stumble, however, there could be trouble ahead."

The Western Blue Chip Economic Forecast publishes the consensus forecasts of panels of economists in 10 Western states. Panelists are drawn from leading firms, universities and state agencies. The publication also features historical data for each state.
The Western Blue Chip Economic Forecast is published 10 times a year by the Bank One Economic Outlook Center, an affiliate of the L. William Seidman Research Institute at Arizona State University's W. P. Carey School of Business. The cost is $110 for 10 print issues ($99 for e-mail subscription). For subscription information, call (800) 448-0432.

W. P. Carey School of Business

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