Green Shoots

Households are reducing their debts and building savings faster than he anticipated, said Richard Berner, co-head of global economics for Morgan Stanley in New York, giving them more room to spend in the future.

“The deleveraging timetable is nearly a year ahead of schedule,” he said.

Debt payments as a share of disposable income fell to 12.46 percent in the first quarter from a peak of 13.96 percent in 2008 and are about in line with the 12.09 percent average of the last 30 years, based on Federal Reserve data. Berner sees the ratio falling to what he considers a sustainable range of 11 percent to 12 percent by year-end. This improvement will help the U.S. economy avoid a relapse into recession and put it on course for 3 percent growth next year, he said. The economy grew 1.6 percent in the second quarter.

History suggests, however, that the U.S. may face another seven years of subpar growth as consumers reduce the debt they built up prior to the recession, said Carmen Reinhart, a professor at the University of Maryland in College Park who presented a paper on the topic at Jackson Hole.

Aggregate consumer debt has fallen for seven straight quarters to $11.7 trillion as of June 30, 6.5 percent below its peak in 2008, the New York Fed said in an Aug. 17 report. Total household delinquencies declined in the second quarter for the first time since 2006, dropping to 11.4 percent of outstanding debt from 11.9 percent in the first quarter.

“Credit quality is improving very rapidly,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania.

U.S. credit-card write-offs fell below 10 percent in July for the first time since April 2009, Moody’s Investors Service said on Aug. 25. Write-offs for loans deemed uncollectible dropped to 9.3 percent from 10.3 percent in June.

The top six U.S. credit-card issuers -- including JPMorgan Chase and Citigroup Inc. in New York and Charlotte, North Carolina-based Bank of America Corp. -- all reported lower write-offs and delinquencies for July in regulatory filings last month. "

- Bloomberg