<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Mark Whitehouse</p> <p>U.S. households have done a lot to get their finances back in order over the past several years. By one indicator, though, they may still have a long way to go.</p> <p>Household leverage -- expressed as debt as a share of assets -- stood at 19.4 percent as of Sept. 30, according to new data from the Federal Reserve's quarterly flow of funds report. That's up from 18.8 percent in June and well above the 20-year average of 16.6 percent. (The Fed data include non-profit organizations, which don’t affect the result much.)</p> <p>The rise in household leverage stems largely from a steep stock-market decline, which outpaced people's efforts to shed their debts. Total household assets shrank 3.4 percent, to $71.1 trillion, while liabilities decreased only 0.4 percent, to $13.0 trillion.</p> <p>What this means for the economy depends in large part on how consumers perceive their financial situation. If all they care about is the flow of cash from month to month, they're in pretty good shape to start spending again. Thanks mainly to record low interest rates, their debt-service ratio -- debt payments as a share of disposable income -- stood at only 11.09 percent as of June 30, the lowest level since 1994.</p> <p>Alternately, if what households care about is how much they have compared to how much they owe, they’re still very far from normal. To get their leverage ratio back down to the 20-year average, they'd have to either reduce their debts by about $2 trillion (14 percent) or gain about $12 trillion (17 percent) on their assets (or some combination of the two).</p> <p>(Mark Whitehouse is a member of the Bloomberg View editorial board.)</p> </body> </html>