Consumer leverage ratio
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 ratio has been used in economic analysis and reporting and has compared relevant economic variables since the 1970s.
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 2013, the ratio stood at 1.05x, down from highs of 1.29x seen in 2007. 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 thus underlying Consumer Leverage represents significant economic risk and reward to the US economy. Jarvis and MacMillan quantify this risk within specific businesses and industries in a ratio form as Consumer Leverage Exposure (CLE).
Consumer Leverage Ratio = Total household debt/ Disposable personal income Edit: The ratios are incorrect. The denominator is from BEA Table 2.1 Personal Income and Its Disposition, Line 27, Disposable Personal Income. The numerator is as described FRB NY Household Debt. 14-Nov-13 Debt 11.28 $T Debt, FRB NY Disp Inc 12.54 Disposable Inc. BEA, Table 2.1, Personal Income and Its Disposition, Line 27 90%
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=58 Note: The BEA table referenced is current and not Q3 2013
As reported by data from the Bureau of Economic Analysis and the Federal Reserve, below are recent historical Consumer Leverage Ratio levels:
- Bureau of Economic Analysis
- Consumer debt
- Consumer economics
- Economic indicators
- Federal Reserve System
- Harvard Business Review
- Consumer Credit: The Next Crisis
- HBR Editor's Blog:  
- 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