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NEW ECONOMIC INDICATOR LAUNCHED; THE ONLY SINGLE COMPREHENSIVE MEASURE OF HOW DEBT AFFECTS AMERICAN CONSUMER SPENDING AND BORROWING BEHAVIOR

 NEW YORK, May 25 /PRNewswire/ -- American Express Travel Related Services Company, Inc. today introduced the American Express Consumer Debt Index compiled by Dr. Allen Sinai, managing director of Lehman Brothers. The Index is designed to assess the state of consumer's financial well-being and its potential impact on their economic and financial behavior. High or increasing levels of the Index reflect more financial pressure and strain on consumers, and may indicate coming difficulties in consumer spending and borrowing. Low or declining levels reflect an improved or improving situation.
 Consumers are responsible for two-thirds of the spending in the U.S. economy. Therefore their behavior has a dramatic effect on the nation's economic health. A 25-point decline in the Index typically has been associated with a one percent rise in consumer spending -- equal to a $41 billion lift in consumer spending in 1992.
 Fourth Quarter Results -- A Pause In Improvement
 In the fourth quarter of 1992 the Index showed a modest increase of 2.4 points, rising to 222.1, presenting a slightly worse financial state for households, and potentially $4 billion is lost in consumer spending.
 Since late 1990, lower interest rates and consumer reluctance to add new debt has led to a significant reduction in consumer debt burdens. As a result, the second half of 1992 was the first time in eight years that the index fell below 225, after peaking at 273 in the fourth quarter of 1990.
 "The Index has improved since late 1990, but remains well above the level typical of our economy when it is in a "recovery," says Dr. Sinai. "At 222, the Index says American households are still significantly more financially vulnerable than in Spring 1983 - near the start of the long economic expansion of the 1980s."
 What Affects The Index?
 The American Express Consumer Debt Index calculates eight key financial measures of consumer debt, debt burdens and interest and loan payments. The components for the measurement of the Index were chosen based on the historical relationships between the components and consumer spending form 1968 to 1992. The components used are (listed in order of weighted importance):
 -- Household debt service relative to aftertax income
 -- Household net worth relative to aftertax disposable income
 -- Consumer installment debt-delinquency rate
 -- Non-revolving consumer credit to non-equity financial assets
 -- Non-revolving household liabilities relative to non-financial
 assets
 -- Mortgage repayments relative to aftertax income
 -- Auto loan repayments relative to aftertax income
 -- Change in the ratio of revolving debt to income
 The increase in the Index during the fourth quarter resulted from a number of factors, with four of the eight index components rising and four falling. The most important factor pushing up the Index was higher payments on new mortgages, caused by a rise in new home prices. Another source was higher average monthly auto loan payments, which increased due to a rise in the price of new cars sold. In addition, higher consumer debt overall and the fall in the value of household non- financial assets pushed the Index higher.
 Partially offsetting these negative effects on the Index were declines in consumer interest payments on existing debt, or debt service, as households continued to refinance mortgages and transfer credit card and auto loan debt into lower interest home equity loans. Also a decline in the delinquency rate on consumer installment debt and higher household net worth relative to income reduced the Index.
 Lehman Brothers, a division of Shearson Lehman Brothers, Inc., is responsible for capital market sales, research and training, as well as investment and merchant banking activities. Shearson Lehman Brothers, Inc. is a wholly-owned subsidiary of American Express.
 American Express Travel Related Services Company, Inc. is a wholly- owned subsidiary of the American Express Company (NYSE: AXP), a diversified travel and financial services company founded in 1850 and a world leader in charge cards, Travelers Cheques, and travel related activities. It is also a leader in financial planning, international banking and investment banking.
 -0- 5/25/93
 /CONTACT: Gail Wasserman, 212-640-2675 or Gregory Tarmin, 212-640-4428, both of American Express Travel Related Services Inc./
 (AXP)


CO: American Express Travel Related Services Company, Inc. ST: New York IN: SU: PDT

LD-WB -- NY004 -- 2006 05/25/93 09:00 EDT
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Publication:PR Newswire
Date:May 25, 1993
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