Magazine article Economic Trends

Uneven Debt Burdens across the United States

Magazine article Economic Trends

Uneven Debt Burdens across the United States

Article excerpt


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.

The changes in consumer indebtedness did not go in the same direction for all states. To compare debt burdens across states, we look at the fraction of debt payments--excluding student loans--to total income, since disposable income is not available on the state level at this time. In the first quarter of 2000, this fraction was 12.11 * percent for the U.S. as a whole. The states with the highest debt burden during the period were mostly in the West, with a few exceptions. Utah was the highest with a debt burden of 15.57 percent, followed by Montana at 15.39 percent. Washington D.C. had the lowest debt burden at 7.31 percent, followed by New York at 8.08 percent.

Eight years later, the debt burden was no longer primarily focused in the West but had spread across the nation. The average debt burden in the first quarter of 2008 was 14.54 percent, a slight increase of 2.43 percentage points from its 2000 level. Minnesota had the highest burden at 33.6 percent, followed by Montana at 22.95 percent and Arizona at 20.99 percent. The state with the lowest debt burden was New York at 9.29 percent, followed by Texas at 10.14 percent and Wyoming at 10.58 percent.

Finally, in the first quarter of 2012, we see a large drop in the average U.S. debt burden. It stood at 10.94 percent, a drop of 3.6 percentage points from 2008 and 1.7 percentage points from 2000. The state with the highest debt burden was New Mexico at 17.65 percent, followed by South Carolina at 16.02 percent and North Dakota at 15. …

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