Is John Q. Public's Debt Load Easing? Well, Not Really...

By one measure--installment debt as a percentage of disposable income--consumers have made considerable progress in reducing their oppressive debt burdens. This critical ratio has now fallen from 18.5% in early 1989 to 16.4%, its lowest level in six years.

Economists L. Douglas Lee and Marlene Grabau of County NatWest/Washington Analysis point out, however, that declining auto loans account for almost all of the reduction. In fact, nonauto installment debt has slipped by only half a percentage point of disposable income since mid-1990. And as business week noted recently, (BW--July 20), home-equity loans and auto leasing have picked up much of the slack in auto credit.

Indeed, mortgage debt (including home-equity loans) continues to reach new heights, rising from 59.4% of disposable income at the start of 1989 to 69.4% at last count. And that, observes Lee, means that "total consumer debt as a percent of personal income has yet to decline." Thus, while falling interest rates and mortgage refinancings have reduced households' actual interest-payment burden over the past year, consumers in today's uncertain economic climate may be more concerned about the still-hefty size of their total obligations than they are heartened by the drop in interest payments.

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