Chart of the week: US household debt still above sustainable area

Summary: US household debt relative to disposable income rose slightly in Q1

What the chart shows: The chart shows US households gross debt, relative to personal disposable income. This debt/income ratio edged up in Q1 2013 for the first time since Q1 2009.

Why is the chart important: The financial crisis that erupted in 2007 was very much an excess debt crisis. Historically, US households have shown themselves able to carry a debt burden that puts their interest and amortisation payments around 15% of disposable income. By 2007, interest and amortisation took 18% of disposable income and debt was close to 130% of income. The implication was that debt was 1/6 too high at normal interest rate levels. This means that debt had to come down from 130% to below 110% of income. But, unsurprisingly, households continued to deleverage. The Q1 2013 figure (if not revised away) shows that households now feel confident at taking up some debt again. This strengthens the case for a sustained US recovery. US household debt relative to disposable income rose slightly in Q1.