Consumers are the most important part of the economy because nearly 70% of US GDP is consumption. The end and purpose of all production in an economy is consumption, so high consumption as a percent of GDP is natural to observe in the most developed economies. It is true that households are largely healthy and debt servicing burdens are low, and that this is not the issue it was 10-11 years ago, especially as it pertains to mortgage debt. We can observe this directly taking into account household debt service payments as a percent of disposable income: However, one has to control for the fact that even with the decline of the home ownership rate from 69% in the mid-2000s to its 64% mark currently (more people rent), we still have to take into account non-debt obligations and other forms of non-discretionary spending. Given mortgage debt is a material portion of household finances, when this is essentially converted to rent payments it can understate the financial stress level on households. Because it will not show up in the debt numbers. We can observe the effect of this in the data by comparing the above dataset to the homeownership rate. Note the tight correlation: The correlation is +0.68 since 1980 and +0.89 since the end of the 1990-91 recession. There is material causality involved because a large amount of household debt is linked to housing. Even though rent is not debt – and thus won’t be visible in the data – it is a non-discretionary expense and such non-debt items must be included in the calculations if you want to accurately monitor financial stresses on households. There is also an important bifurcation in the economy when non-mortgage consumer debt-to-income ratios are looked at when excluding the highest earners. This means debt burdens are highest for the lowest earners and increased debt servicing costs impact these individuals disproportionately. Conclusion Household leverage is low when taking the data at face value. Burdens are indeed modest, but when considering non-debt non-discretionary expenses and looking at the data at a higher level of granularity suggests that households aren’t quite as healthy overall. This has broad implications both in terms of macroeconomics (e.g., overestimation of consumers’ spending capacity) and in niche financial products whose valuations are dependent on this data (e.g., rMBS, various receivables securitizations).