Consumer leverage ratio

Consumer Leverage Ratio is a term popularized by William Jarvis and Dr. Ian C MacMillan in a series of articles in the Harvard Business Review and refers to the ratio of total household debt, as reported by the Federal Reserve System to disposable personal income, as reported by the US Department of Commerce, Bureau of Economic Analysis.

The term in a variety of other forms has been used to quantify the amount of debt the average American consumer has, relative to his/her disposable income. As of Q2 2011, the ratio stood at 1.15x. The historical average ratio since late 1975 is approximately 0.9x.

Many economists argue the rapid growth in consumer leverage has been the primary fuel of corporate earnings growth in the past few decades and represents significant economic risk to the US economy. Jarvis and MacMillan quantify this within specific businesses and industries in a ratio form as Consumer Leverage Exposure (CLE).

Consumer Leverage Ratio = Total household debt/ Disposable personal income

As reported by data from the Bureau of Economic Analysis and the Federal Reserve, below are recent historical Consumer Leverage Ratio levels:

Quarter Ratio
Q1 2005 1.20x
Q2 2005 1.21x
Q3 2005 1.23x
Q4 2005 1.24x
Q1 2006 1.25x
Q2 2006 1.26x
Q3 2006 1.27x
Q4 2006 1.28x
Q1 2007 1.29x
Q2 2007 1.30x
Q3 2007 1.30x
Q4 2007 1.30x
Q1 2008 1.28x
Q2 2008 1.24x
Q3 2008 1.26x
Q4 2008 1.27x
Q1 2009 1.28x
Q2 2009 1.27x
Q3 2009 1.27x
Q4 2009 1.26x
Q1 2010 1.23x
Q2 2010 1.21x
Q3 2010 1.19x
Q4 2010 1.18x
Q1 2011 1.16x
Q2 2011 1.15x

See also

External links

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