Abstract
This paper examines the relationship between measures of the consumer debt burden and various economic indicators. The consumer loan delinquency rate is useful in predicting consumer spending on durable goods and retail sales, while various economic indicators are useful in predicting the ratio of consumer installment credit to disposable income. The results provide no evidence for the hypothesis that a rising consumer debt burden signals any slowdown in the growth of consumer spending and the economy. Instead, the results indicate that rising consumer indebtedness is a normal occurrence in an economic expansion. It remains to be seen whether innovations in credit card usage, along with the growing use of substitutes for traditional consumer loans, will have an impact on the causal relationship between consumer debt and the economy.
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Schmitt, E.D. Does rising consumer debt signal future recessions?: Testing the causal relationship between consumer debt and the economy. Atlantic Economic Journal 28, 333–345 (2000). https://doi.org/10.1007/BF02298325
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DOI: https://doi.org/10.1007/BF02298325