As Finances Mend, Will Consumers Spend?
The Fed recently released first quarter data on household finances. Stronger balance sheets reflect improved real estate prices, rising stock prices, and continued higher rates of household saving. Household finances still lack the strength they exhibited in the early 1990s, but they have improved enough to offer a firm basis for future consumer spending and, consequently, a durable, if still sluggish, general economic recovery.
The level of household assets to liabilities is better today than any time since 2001. If recent trends continue, the ratio, and what it implies about financial health, will take only one or two years more to regain the level it commanded before the American consumer yielded to the siren song of excessive debt.
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