The household debt service ratio (DSR) measures the percentage of disposable personal income that goes toward paying household debt including mortgages and consumer debt. A higher DSR means consumers have more debt burden and are likely to cut back on spending, potentially leading to economic downturn. Data from the Federal Reserve shows the US DSR rose sharply during the 2007-2008 financial crisis but has since stabilized around 9-10%, indicating consumer financial stability. Graphs comparing consumer spending, GDP growth, and government budgets in the US and UK suggest consumer spending levels correlate with overall economic and fiscal conditions.

1. Srishti Bhatnagar
Household Debt Service Ratio: Indicator of Consumer Spending and Financial Stability in
the United States
Abstract:
Debt is a big indicator in any nation’s economic growth. The debt of a specific
household, otherwise known as the Household Debt Service Ratio, is one example of an
economic indicator that can potentially explain the upward and downward swings of an
economy. This report contains supporting data on this indicator taken from the Federal Reserve
Board, Trading Economics website, and the Federal Reserve Economic Data site. Looking at
data from these sources show just how much household debt determines consumer spending
which then affects the nation’s economy and how financially stable it is. The data shows that,
specifically in the US, higher household debts decrease consumer spending which, in return,
increase the chance of a recession in an economy. In 2008, the US economy experienced a major
economic downfall in the housing market. In the aftermath of that recession, recent household
debt service ratios have been indicating nothing less than a stable economy aiming for positive
growth.
Household Debt Service Ratio:
The Household Debt Service Ratio, otherwise referred to as DSR, is a strong indicator of
the well-being of an economy. It is particularly indicative of a possible economic crisis as the
ratio explains a lot of the current level of consumer spending and it is calculated quarterly.1
Logically, a higher than normal ratio of debt means that consumers are burdened with more debt
than usual and accompanied with a decline in spending. So an economic downturn is most likely
the result of household debt service ratios staying at relatively high levels for a long period of
time. Alternatively, a series of low household debt ratios usually indicates that people are
currently harboring reasonable amounts of debt and they do not feel pressured or stressed by
their financial situations. In this scenario consumer spending is at higher levels which means, by
an extension, the economy experiences growth. Thus the DSR is a countercyclical indicator for
the economy. It tends to decrease when the economy is growing and increase when the economy
is failing.
Unfortunately, the Household Debt Service is only an overall estimate of the debts
consumers face. It is nearly impossible to account for every single loan made in every single
household so the data for this index can never be exact1
. However, as with many types of data,
once large amounts of DSR data is amassed definite trends of the burden of household debts can
be clear.
Another important economic indicator that is usually shown alongside the Household
Debt Service Ratio is the Financial Obligations Ratio. This second ratio includes the DSR as well
as “rent payments for tenants, real estate taxes and home insurance for homeowners. It also
includes, as part of income, rent paid by tenants to property owners”2
. As a result, the Financial
Obligations Ratio, or the FOR, is always greater than the DSR. Alone, the DSR cannot give an
accurate representation of all debt a consumer in the economy is facing because it only covers
mortgages and consumer debt payment. That is why the DSR is always reported alongside the

2. FOR. Together, these ratios give a complete representation of the burden of all kinds of debt on a
consumer.
Calculating the DSR:
Starting from quarter 3 of the year 2013 the Federal Reserve Board of Governors decided
to alter the way the Household Debt Ratio is displayed3
. Now when the DSR is calculated, it is
comprised of two smaller components: the Mortgage DSR and the Consumer DSR. The
Mortgage Debt Service Ratio is calculated by dividing the total quarterly required mortgage
payments by total quarterly disposable personal income. Similarly, the Consumer DSR is found
by dividing total quarterly scheduled consumer debt payments by a consumer’s total quarterly
disposable personal income. The sum of the Mortgage DSR and the Consumer DSR gives us the
total DSR or Household Debt Service Ratio which is the total quarterly debt payments of a
consumer divided by the total quarterly disposable personal income.
Total DSR = Mortgage Payment % + Consumer Debt %
Table.1: Household Debt Service and Financial Obligations Ratios, United States, 2000-2009
Quarter FOR DSR
Total Mortgage Consumer
2004:1 16.82 12.16 5.82 6.34
2004:2 16.74 12.10 5.82 6.28
2004:3 16.87 12.22 5.92 6.31
2004:4 16.83 12.23 5.99 6.23
2005:1 17.22 12.53 6.23 6.30
2005:2 17.22 12.54 6.28 6.26
2005:3 17.24 12.56 6.38 6.18
2005:4 17.26 12.59 6.48 6.11
2006:1 17.20 12.57 6.50 6.07
2006:2 17.35 12.68 6.68 5.99
2006:3 17.51 12.77 6.82 5.95
2006:4 17.64 12.85 6.92 5.93
2007:1 17.70 12.88 6.97 5.90
2007:2 17.83 12.95 7.03 5.93
2007:3 17.97 13.05 7.09 5.96
2007:4 18.09 13.17 7.19 5.98
2008:1 17.93 13.04 7.09 5.95
2008:2 17.45 12.67 6.89 5.78
2008:3 17.68 12.77 6.95 5.83
2008:4 17.76 12.74 6.93 5.81
2009:1 17.76 12.64 6.88 5.75
2009:2 17.41 12.29 6.71 5.58
2009:3 17.32 12.14 6.63 5.51
2009:4 17.05 11.88 6.52 5.36
Source: The Federal Reserve Board

3. This table above taken from the Federal Reserve Board contains the Household Debt
Service Ratio index for the United States. This table specifically shows the two subcomponents
of the DSR: the percentage of disposable personal income that are mortgage payments and the
percentage of disposable personal income that are consumer debts. This data is a great
representation of the damaging effects of the housing market bubble that began in 2007. In
quarter 4 of 2007 the DSR reached a high of 13.17 due to the crippling effects of irresponsible
mortgage lending during that time period. The table below shows the slow yet steady decline of
the DSR after the housing bubble impacted the economy.
Table.2: Household Debt Service and Financial Obligations Ratios, United States 2010-2014
Quarter FOR DSR
Total Mortgage Consumer
2010:1 16.80 11.65 6.38 5.27
2010:2 16.46 11.35 6.23 5.13
2010:3 16.26 11.15 6.13 5.02
2010:4 16.09 10.97 5.96 5.02
2011:1 15.85 10.75 5.70 5.05
2011:2 15.79 10.65 5.62 5.03
2011:3 15.69 10.53 5.54 4.99
2011:4 15.66 10.44 5.43 5.01
2012:1 15.45 10.22 5.29 4.94
2012:2 15.38 10.13 5.19 4.94
2012:3 15.43 10.14 5.15 4.99
2012:4 15.04 9.84 4.95 4.88
2013:1 15.53 10.12 5.02 5.10
2013:2 15.41 10.02 4.91 5.11
2013:3 15.37 9.98 4.85 5.13
2013:4 15.44 10.03 4.85 5.18
2014:1 15.34 9.96 4.77 5.19
2014:2 15.25 9.91 4.71 5.20
Source: The Federal Reserve Board
In the aftermath of that housing bubble, the DSR was able to reach a much lower ratio of
9.84 in quarter 4 of 2012. From 2010 up until now, the DSR has managed to stay around a mere
9-10 ratio of debts to income, creating a sense of stability in the economy when it comes to
consumer’s household debts.

4. 0,47
0,48
0,49
0,5
0,51
0,52
0,53
0,54
0,55
0,56
2002
2004
2006
2008
2010
2012
2014
2016
Graph.1: DSR, Household Debt Service Payments as % of Disposable Personal Income
Source: Federal Reserve Economic Data
Graph.1 clearly depicts the sharp increase in the household debt ratio around 2007 and
2008.
Mortgage Payments as a Fraction of DSR:
Given the past Household Debt Ratios for the United States, looking at how much
consumers’ mortgage payments contributed to the DSR tells a lot about the economy. Below,
Graph.2 puts the percentage of the Household Debt Service Ratio consisting of mortgage
payments against every quarter the DSR was taken.
Graph.2: DSR: % of Household Debt Service Ratio consisting of Mortgage Payments
In accordance with the previous graph and tables, Graph.2 shows a clear image of
increase of mortgage payments during the 2007/2008 housing bubble. This means during that
recession caused by the housing crisis, mortgages were the main type of debt that consumers

5. were most burdened by. Consumer debt, by comparison, which includes credit card debts and
student loans3
, took up less than half of consumers’ finances.
Indicating GDP and Economic Growth with Consumer Spending
Graph.3 below compares consumer spending for United States consumers, with billions
of US dollars on the left axis, against the US GDP growth rate, which is measured on the right
axis.
Graph.3: United States Consumer Spending | United States GDP growth
Source: Trading Economics
Although these two types of data compared in Graph.3 do not initially look in sync, they
both have a similar overall trend. For the most part GDP growth in the US seems to follow the
path that the consumer spending takes. As seen during the 2007 downfall, GDP growth fell
drastically, to a low of -10%, signaling a huge recession in the economy. This larger than usual
contraction in the US economy was due to the drop in consumer spending which was around the
time household debt ratios were very high. Similarly, GDP growth recovered from that drop and
continued on a more regular path as consumer spending once again started to increase. This
illustrates how consumer spending, and by extension, the household debt ratio, is an indicator of
economic crises.
Graph.4 below compares consumer spending for United States consumers, with billions
of US dollars on the left axis, against the US government budget, measured in billions of US
dollars on the right axis.

6. Graph.4: United States Consumer Spending | United States Government Budget
Source: Trading Economics
Graph.5 below compares consumer spending for United Kingdom consumers, with
millions of British Pounds on the left axis, against the UK government budget, measured in
millions of British Pounds on the right axis.
Graph.5: United Kingdom Consumer Spending | United Kingdom Government Budget
Source: Trading Economics
Graph.4 and Graph.5, illustrate a possible connection between spending at the consumer
level and the government budget. For example, it is clear that consumer spending and the
government budget dropped (around early 2008) and rose (around 2010) at around the same
times. Looking at Graph.5, there seems to be an even greater correlation between consumer
spending and government budget.

7. Both graphs seem to tell us that consumer spending roughly indicates how much the
government budget is. In Graph.4 and Graph.5, each country’s government budget is lagging and
tends to follow the path of that consumer spending takes. This further proves that thee household
debt service, which tells us how consumer spending is in the economy, can really indicate
troublesome or expanding times in the economy. So far, all data and graphs have clearly pointed
out that the DSR signaled a recession in the US economy at around the end of 2007. If the
household debt service ratio was able to point out such significant economic changes then it is a
reliable indicator for financial stability in the economy as well as future economic recessions or
booms.
Endnotes
1. "Household
Debt
Service
and
Financial
Obligations
Ratios."
The
Federal
Reserve
Board.
Web.
11
Nov.
2014.
http://www.federalreserve.gov/releases/housedebt/about.htm.
2. "Household
Debt
Service
and
Financial
Obligations
Ratios
-­‐
Federal
Reserve."
IRE.
Web.
10
Nov.
2014.
https://www.ire.org/resource-­‐center/econocheck/household-­‐debt-­‐
service-­‐and-­‐financial-­‐obligations-­‐ratios/.
3. "Household
Debt
Service
and
Financial
Obligations
Ratios
(FOR)."
The
Federal
Reserve
Board.
9
Dec.
2013.
Web.
11
Nov.
2014.
http://www.federalreserve.gov/feeds/for.html.