How Vulnerable Is Your Business to Consumer Debt?

This past summer a certain amount of optimism began to reemerge, with talk of “green shoots” and even a potential recovery as the stock market rebounded by 30% from its low in March. That optimism may be misplaced, however. Look at the graph below, which tracks the ratio of U.S. consumers’ debt to their disposable income. While a little off its high point, the number now stands at around 130%. In other words, it will take American consumers nearly 16 months ( 1.3 years), on average, to pay off their debt, assuming that they spend absolutely nothing on housing, clothes, or food. American consumers have maxed out their credit, and with household wealth down as a result of the property collapse and employment prospects uncertain, they’re not about to take on more. Instead, they’ll be looking to cut back on it. Many will default. Both the defaults and the waning consumer appetite for credit bode ill for businesses.