U.S. Households Have Shaved Down Debt, Still Bunkered Down reports National Debt Relief

(EstateNewsWire.com, October 22, 2012 ) San Francisco, CA- After a long period of consumer hunkering down, U.S. families have been able to lower their debt loads to pre-recession levels.

The number of home mortgages, credit card debt, and consumer liabilities in other areas are now on par with 2006 and earlier, according to Moody’s Analytics. The one exception to the rule seems to be student loans, which have continued an upward climb in recent years. The continued increase is likely due to many going, or returning, to school in order to be more competitive in the difficult job market.

Households are paying under 16% of after-tax income to cover debt and lease obligations. That marks the smallest share since 1984, according to Federal Reserve data.

Despite the strong showing from individuals, experts do not expect a ramp up in spending, save for the holiday season. Even during the spending season, consumers will be remaining cautious after the difficult half-decade they have endured. There is also considerable uncertainty facing consumers about what direction the country will go in light of what could be a tight presidential race.

"It's sort of a new reality that you have," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "We're going to try to live within our means because living beyond it didn't work out."

Foreclosure numbers as well as frugality in many households helped reduce liabilities in the sector. The arduous task of picking away at debt seems to be nearing acceptable levels, which should help the economy.

With less debt, consumers will feel more capable of spending, even if they do not do so immediately, according to Thomson Reuters/University of Michigan survey of consumers this month. Those factors could lead to more spending and risk-taking in the future.

There are still quite a few economists who remain concerned about the economic outlook. That is because as job growth has been mediocre in the United States, workers’ inflation-adjustment has remained stagnant. Tax hikes are likely to hit businesses next year. Many businesses fear what Washington policymakers will be levying on their establishments.

The holiday season will give a clearer picture of just how healthy the economy can become in light of possible consumer confidence.

"You're comforted that it's receded by as much as it has," Michael Niemira, chief economist at the International Council of Shopping Centers, said of household debt. "But what you don't know is whether there's a higher consumer willingness to take on more debt."

Economists feel that incomes are simply not growing fast enough to support the rapid pace of spending. That problem certainly can spell disaster. The Baby Boomer generation adds significant pressure over the next couple of decades.

Miemira’s trade group is projecting a 3% increase in holiday spending from last year.

Debbie Alakson said her and her husband have cut away at their debt but have not yet been able to fully remove themselves from the metaphorical bunker.

"We've become very frugal," said Aslakson, who is in her 50s and has been working sporadically because of health problems. Her husband works full time as a nurse, and he recently bought a computer, she said, but only because the last one "completely fell apart."

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