Except for student loans, U.S. household credit in all major categories has now fallen enough to allow a higher pace of overall economic growth.
As we have previously highlighted, the U.S. deleveraging cycle is at least half over (a typical consumer deleveraging cycle that follows a credit-driven housing boom and bust lasts 5-7 years).
Importantly, the drag on growth from household deleveraging should diminish as the cycle becomes more advanced. Real house prices are no longer falling and down payment rates have moved up: the dollar value of loans falling into delinquency has decreased to the lowest level since late-2006. This means that mortgage deleveraging should become more organic in nature, which, in turn, means that it will be less of a drag on spending.
Outside of housing debt, the pace of deleveraging should also diminish over time: as a share of disposable income, consumer credit has already fallen to mid-1990s levels. The only area of household debt that has continued to expand rapidly is student debt, which has more than quadrupled since 2003. Given that the bulk of student debt is either held directly or guaranteed by the government, this is a worrying development for taxpayers. Nonetheless, as a whole, there has been meaningful progress in household deleveraging.
This means that, assuming a positive outcome in Washington, a higher pace of growth in 2013 is more possible than at any other previous point in the recovery.
Article courtesy of http://bcaresearch.com