Quick Bites | US Households

US households are in great shape. See the chart below, which shows household leverage, that is, the ratio of liabilities to net wealth. Indeed, leverage has declined 50% since the 2008 GFC and is currently at levels last seen in the early 1980s. Unfortunately, confidence remains depressed.

Source: Apollo Asset Management

Why is this important?

US consumer spending is one of the most important drivers of global economic growth. Consumer spending accounts for around 70% of US GDP.

The importance of US consumer spending is reflected in its impact on global trade. Because the US is the world’s largest economy, and a massive importer of goods and services from other countries, when US consumers increase their spending, it creates demand for products from other countries, which stimulates growth. Thus US consumer spending is a critical driver of both domestic and global economic growth. As such, investors closely monitor trends in US consumer spending to understand the direction of the global economy.

While US households have the capacity to increase their spending, it is a matter of confidence whether they actually do or not, and consumer sentiment indexes remain depressed. While personal balance sheet levels remain strong, US households have probably drawn down around 30% of their excess savings so far and will have spent over half by the end of 2023. Also, wealth effects on spending are turning somewhat negative due to declines in home and equity prices and high gas prices. So the growth boost from strong household balance sheets may be behind us.