Rebalancing the U.S. economy: the trend is favorable.

• Author: Furman, Jason

Although economic performance bounces around from quarter to quarter, it is widely appreciated that the trend in the U.S. economy in recent years has been one of steady improvement. American businesses are extending the longest streak of job creation on record, the unemployment rate has fallen below 6 percent years ahead of expectations, and aggregate output has accelerated. But perhaps less appreciated is the improvement in a broad range of structural imbalances that pre-dated the crisis. Rather than accelerating the recovery with new borrowing that would exacerbate many of the problems that precipitated the Great Recession, the United States has rebalanced toward a more sustainable position than before the crisis.

The United States has reduced its indebtedness on four levels: in the household sector, in the private business sector, on a national level with higher aggregate saving, and in international trade as a net recipient of foreign capital. On top of recent acceleration in U.S.

output and employment growth, these structural improvements lay the foundation for more sustainable growth beyond the current business cycle. Our international rebalancing is particularly noteworthy as part of a broader global movement toward smaller current account imbalances. This movement has come despite global macroeconomic policies in some current account surplus countries that have militated toward increasing disparities--and in some notable and concerning cases have created troubling growing surpluses.

U.S. INTERNAL REBALANCING

While many households still face challenges, the aggregate ratio of debt to disposable income in the household sector has decreased to a level last seen in 2002, as households have both increased their savings and reduced their borrowing. The combination of lower debt levels and lower interest rates has reduced the aggregate value of household debt service payments to 9.9 percent of disposable income, the lowest level since at least 1980. Declining debt service, together with lower gasoline prices and improved consumer confidence, leaves more room for households to consume and grow the economy.

Indeed, personal consumption expenditures have been one of the fastest-growing components of gross domestic product.

Declines in real median household net worth now appear to have moderated, owing to lower levels of household debt and recovering asset values. But there is no doubt that the typical family faces greater challenges than the...