Low Debt, Unemployment Prompt U.S. Enthusiasm

A fall in consumer-held debt and a rise in job openings are prompting greater enthusiasm in a strengthening U.S. economy, emboldening small business owners and workers.

A fall in consumer-held debt and a rise in job openings are prompting greater enthusiasm in a strengthening U.S. economy, emboldening small business owners and workers.

The ratio of total disposable income to household debt repayments has fallen near its record low, prompting many economists to anticipate additional discretionary consumption in the near term. According to the Federal Reserve, the household debt service ratio and financial obligation ratio both fell.  The consumer debt service ratio was 5.25 in the third quarter of 2014.  Though it is a lower number than the prior quarter, it is slightly higher year-over-year. In 2013, the consumer DSR was 5.13.

Lower debt payments relative to income means Americans have more money to spend in consumer markets, but that spending has not seen its way into the economy in a considerable measure since the dot-com bubble of 2001, when the consumer DSR began a long decline. At its height, the consumer DSR was 6.72.

Combined with less income spent on debt, Americans are finding more employment opportunities.  This can result in greater job churn that, in turn, may mean rising incomes in 2015. According to the Bureau of Labor Statistics, job openings rose by 5 million in November, a 21% rise year-over-year and 4.2% month-over-month.

Job Gains

Job openings saw a radical acceleration in 2014, which was the best year for job growth since 1999.

In addition to 5 million new jobs, November saw 2.6 million people leave their job and 1.6 million layoffs. Many economists consider an increase in the number of people quitting to be sign of economic strength.  It suggests more workers are confident they can leave their job and find another one at the same or better pay.

Small Business Optimism

In tandem with growing job openings, small businesses are upbeat about the future. According to the National Federation of Independent Business, small business optimism rose 2.3 points to 100.4 in December. That marks the highest level of small business optimism since October 2006.

Many economists consider the SMBOI to be a leading indicator of economic conditions, as a fall in the index came about one year before each of the last three recessions. The SMBOI fell from over 100 in late 2006 to 95 by January 2008, just before the economy fell into full recession. It also fell from 102 to 97 in 2000.  It reached its lowest point in early 2009, and has been steadily recovering since summer of that year.

Commenting on the results, NFIB Chief Economist Bill Dunkelberg noted that the optimism was firmly grounded in data and not speculative. “The December Index shows much broader strength led by a significant increase in the number of owners who expect higher sales,” Dunkelberg said, adding that “2015 could be a very good year” for small business owners and consumers alike, thanks to rising confidence and greater spending.