Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Bio
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
Bio
X •  LinkedIn
 
  Financial Obligations Ratio Lowest Since 1994
Posted Under: Government • Fed Reserve
Supporting Image for Blog Post

 
The financial obligations ratio measures the share of after-tax income consumers need to make their monthly recurring payments.  These payments include mortgages (principal, interest, property taxes, and homeowners' insurance), rent, car loans and leases, as well as debt service on credit cards, student loans, and other kinds of signature loans.  In fact, if someone has stopped paying their mortgage and is waiting for the sheriff to kick them out at foreclosure, they are still obligated to pay their mortgage and so those payments still count in the ratio.  What's left over after all these obligations is the money consumers can use to buy new goods and services. 

The data go back to 1980 and the obligations ratio hit a record high of 18.85% back in 2007.  Last Friday the Federal Reserve released its latest data through the first quarter of 2011, which show that obligations now total only 16.39% of after-tax income, the smallest share since 1994.  The decline in the past few years has primarily been among homeowners who have reduced both their mortgage and consumer obligations.  Renters' obligations have also declined.   

These lower payments mean consumer purchasing power can grow at or faster than the pace of income.

Posted on Monday, June 20, 2011 @ 12:33 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.