When the global financial crisis hit in 2007, it was easy to blame Americans for their reckless mortgage binge. Their median wages had barely budged since the late 1970s, and yet here they were, buying McMansions they couldn’t afford, living beyond their means.
How things have changed. US households have patched up their balance sheets, slashing their debt payments from more than 13% of take-home pay in 2007 to less than 10% today. That’s the lowest number since the US Federal Reserve records began, in 1980. For American households, this is unprecedented, says Ellen Zentner, chief economist at Morgan Stanley.
“I can spend hours talking about the consumer balance sheet—we’ve never seen anything like this. That’s why we’re convinced that [the next recession] is not going to be caused by households this time,” she says. So what, then, is a likelier candidate? “What was it Deep Throat said? Follow the money,” says Zentner. “I would say follow the leverage.”