US Household Debt Falls to 29-Year Low

Dec 28, 2012 8:24am

Morning Business Memo

While politicians in Washington stumble toward the fiscal cliff, American households have really cleaned up their act. After consumers build up a massive debt load during the housing bubble of the early 2000′s, they went on a money diet. According to the Federal Reserve, one key measurement of household debt in the third quarter plunged to its lowest level in 29 years. The share of loan payments to disposable personal income fell to 10.61 percent. This means that if the economy improves many consumers may have more money to spend.

Right now though that could be a big “if.”  Unless there’s a deal the fiscal cliff could do real damage to the economy. The first and best-known impact would be sweeping tax hikes: “By jacking up taxes on so many taxpayers it will squeeze purchasing power,” says Greg Ip, US economics editor of  The Economist Magazine. Many consumers and businesses would cut back on spending. “They just decide to pull back, not to spend, not to buy that house, not to initiate that new business venture and that would multiply the negative impact.” The third effect would come from sharp and sudden government spending cuts. “You’ll see layoffs in the defense industry layoffs in any industry that does business with the federal government as federal spending is cut back sharply.”

Shipping companies costs could rise. A possible strike by thousands of dockworkers may bring commerce to a near standstill along the East Coast and the Gulf coast. More than 14,000 longshoremen at 15 large ports are threatening to walk out on Sunday after their contract expired in September. Some shippers have diverted imports to the West Coast or sent goods by air or rail.   The two sides agreed to extend it once already, for 90 days, but they have so far balked at extending it again when it expires at 12:01 a.m. Sunday.

Another threat to shipping comes from the falling level of the Mississippi River. Barge industry trade groups warn that because of the drought, river commerce could almost come to a halt as early as next week in an area south of St. Louis. The Coast Guard remains confident that the nation’s largest waterway will remain open. But officials with two trade groups — the American Waterways Operators and Waterways Council — say that even if the river is open, further limits on barges will bring commercial traffic to a halt.

Best wishes for a Happy New Year to all readers. The memo will return January 2.

Richard Davies Business Correspondent ABC NEWS Radio ABCNews.com twitter.com/daviesabc

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