Can measures of the consumer debt burden reliably predict an economic slowdown?

C. Alan Garner

Economic Review, 1996, vol. 81, issue Q IV, 63-76

Abstract: Some analysts and business executives are becoming concerned that recent increases in the consumer debt burden may foreshadow an economic slowdown. Higher debt increases the risk that a household may experience financial distress in the event of an adverse economic shock, such as the loss of a job or large uninsured medical expenses. As the risk of financial distress rises, households may become less willing to spend on consumer goods, particularly big ticket items such as automobiles and home computers, which in turn would hurt economic growth.> Different measures of the consumer debt burden are currently giving conflicting signals about the seriousness of the problem. It is not clear whether these measures have been useful indicators of consumer spending and economic growth in the past. Moreover, a measure of the debt burden that was useful in the past might be unreliable today if recent changes in the financial system, such as greater use of credit cards, are distorting the relationship between consumer debt and real economic variables.> Garner examines whether various measures of the consumer debt burden can reliably predict a slowdown in economic growth. He concludes that analysts should continue to monitor various measures of the consumer debt burden, but these measures are not highly reliable in predicting future economic slowdowns.

Keywords: Consumer; credit (search for similar items in EconPapers)
Date: 1996
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