C&B Notes

Shaping Up Household Balance Sheets

People across the nation delevered after the financial crisis in 2008, but they did so in different amounts as measured by state.

Americans’ debt burden — the ratio of debt payments to disposable income — grew steadily before the last recession and fell sharply once the recession began.  But the changes were not spread uniformly across all states.  Some states saw dramatic swings in the overall indebtedness of their residents.  Others experienced little change.

The total U.S. debt burden peaked before the recession at 16.5 percent in the first quarter of 2004 but is now at 11.1 percent.  Since incomes have generally been rising, falling debt burdens are likely the result of deleveraging and falling interest rates.  Americans had been increasing their debt since the turn of the century but turned course during the recession.  By the third quarter of 2012, debt was back down to its 2001 level.

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Even though the aggregate debt burden was drastically increasing before the crisis and plummeting after it, some states did not change their debt-level category as measured in the charts above.  Fifteen states remained in the same debt group through all three periods analyzed, with 12 of them in the 1 percent–3.1 percent group and 3 states in the 3.1 percent-4 percent group.  For example, Connecticut, Wyoming, Alabama, and Texas all remained in the 1 percent-3.1 percent group and changed a total of only 40 basis points or less across the three time periods.  Nine states actually decreased their debt burden between 2000 and 2008 by an average of 22 basis points.  The other 42 states increased their burden by an average of 79 basis points between 2000 and 2008; all of these states, however, decreased their debt burden later, from 2008 to 2012.  Furthermore, of the 42 states that increased their debt burden between 2000 and 2008, 36 had a lower debt burden in 2012 than in 2000.  A remarkable 49 states decreased their debt burden between 2008 and 2012, with only North Dakota and New Mexico increasing by 98 and 99 basis points, respectively.

Via Jason Zweig