- Consumer leverage ratio
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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
- Bureau of Economic Analysis
- Consumer
- Consumer debt
- Consumer economics
- Economic indicators
- Federal Reserve System
- Harvard Business Review
External links
- Consumer Credit: The Next Crisis
- HBR Editor's Blog: [1] [2]
- Harvard Business Review, October 2009
- Harvard Business Review Toolkit
- Harvard Business Review CLE Calculator
- Rita Gunther McGrath's Blog
- The Narrow Bridge Blog by Anya Kamenetz
- WSJ Blog: Real Time Economics
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- Financial economics
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