The Consumer Leverage Ratio is the ratio of total household debt to disposable personal income, popularized by William Jarvis and Ian C. MacMillan in the Harvard Business Review, and it is read as an approximation of how many years of disposable income it would take an average household to pay off all of its outstanding debt. A rising ratio signals that household borrowing is growing faster than household income, which is watched as a sign of building financial fragility in the household sector, while a falling ratio suggests households are deleveraging relative to their income. It is used alongside other household debt measures to assess how exposed consumer spending is to a shock in interest rates or income.
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1. Consumer Leverage Ratio (Wikipedia)
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In essence, the consumer leverage ratio demonstrates how many years it would take an average consumer to pay off their debt if their entire annual disposable income went toward it.
2. US Leading Indicators (The Conference Board)
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