While no single element of the economy is a magic elixir that will propel growth, there is one glaring area that continues to affect overall economic growth: Household Debt.
One of the main aftershocks of the weak economic recovery has been the indebted fiscal condition of U.S. households.
From 1952 to 1979, the average ratio of household debt to gross disposable income was 57%, but over the past three decades the averages steadily, and then dramatically, climbed higher.
In the 1980s, it averaged 69%; in the 1990s it averaged 84%; but then the housing boom hit in the 2000s and the ratio skyrocketed to an average of 112%.
The ratio ultimately peaked in Q3 2007 at 127%, right before the onset of the recession.
While the household-debt-to-disposable-income ratio has come down to 113%, there is still a way to go to reach the lower levels of the 1980s or 1990s. Given the level of gross disposable income at the end of Q1, overall household debt would need to fall another -$3.4 trillion to match the average debt-to-disposable-income ratio of 84% from the 1990s.
It will be a long slog to get household debt back to more sustainable levels—a process made all the more difficult and painful by the slow growth in personal income.
As long as household debt levels remain high, deflationary pressures will likely remain a headwind to consumer spending, and thus to economic growth.
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