Meet the Author

Yuliya Demyanyk |

Senior Research Economist

Yuliya Demyanyk

Yuliya Demyanyk is a senior research economist in the Research Department of the Federal Reserve Bank of Cleveland. Her research focuses on analysis of the subprime mortgage market, on the roles that financial intermediation and banking regulation play in the U.S. economy, and on analysis of financial integration in the United States as well as in the European Union.

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Meet the Author

Samuel B. Chapman |

Author

Samuel B. Chapman

Samuel Chapman is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

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02.08.13

Economic Trends

Uneven Debt Burdens across the United States

Yuliya Demyanyk and Samuel Chapman

Americans’ debt burden—the ratio of debt payments to disposable income—grew steadily before the last recession and fell sharply once the recession began. But the changes were not spread uniformly across all states. Some states saw dramatic swings in the overall indebtedness of their residents. Others experienced little change.

The total U.S. debt burden peaked before the recession at 16.5 percent in the first quarter of 2004 but is now at 11.1 percent. Since incomes have generally been rising, falling debt burdens are likely the result of deleveraging and falling interest rates. Americans had been increasing their debt since the turn of the century but turned course during the recession. By the third quarter of 2012, debt was back down to its 2001 level.

The changes in consumer indebtedness did not go in the same direction for all states. To compare debt burdens across states, we look at the fraction of debt payments—excluding student loans—to total income, since disposable income is not available on the state level at this time. In the first quarter of 2000, this fraction was 12.11* percent for the U.S. as a whole. The states with the highest debt burden during the period were mostly in the West, with a few exceptions. Utah was the highest with a debt burden of 15.57 percent, followed by Montana at 15.39 percent. Washington D.C. had the lowest debt burden at 7.31 percent, followed by New York at 8.08 percent.

Eight years later, the debt burden was no longer primarily focused in the West but had spread across the nation. The average debt burden in the first quarter of 2008 was 14.54 percent, a slight increase of 2.43 percentage points from its 2000 level. Minnesota had the highest burden at 33.6 percent, followed by Montana at 22.95 percent and Arizona at 20.99 percent. The state with the lowest debt burden was New York at 9.29 percent, followed by Texas at 10.14 percent and Wyoming at 10.58 percent.

Finally, in the first quarter of 2012, we see a large drop in the average U.S. debt burden. It stood at 10.94 percent, a drop of 3.6 percentage points from 2008 and 1.7 percentage points from 2000. The state with the highest debt burden was New Mexico at 17.65 percent, followed by South Carolina at 16.02 percent and North Dakota at 15.37 percent. The state with the lowest burden was Washington D.C. at 5.57 percent, followed by New York at 7.05 percent and Texas at 8.46 percent.

Even though the aggregate debt burden was drastically increasing before the crisis and plummeting after it, some states did not change their debt-level category as measured in the charts above. Fifteen states remained in the same debt group through all three periods analyzed, with 12 of them in the 4 percent–12.4 percent group and 3 states in the 12.4 percent–16 percent group. For example, Connecticut, Wyoming, Alabama, and Texas all remained in the 4 percent–12.4 percent group and changed a total of only 1.6 percentage points or less across the three time periods. Nine states actually decreased their debt burden between 2000 and 2008 by an average of 90 basis points. The other 42 states increased their burden by an average of 3.14 percentage points between 2000 and 2008; all of these states, however, decreased their debt burden later, from 2008 to 2012. Furthermore, of the 42 states that increased their debt burden between 2000 and 2008, 36 had a lower debt burden in 2012 than in 2000. A remarkable 49 states decreased their debt burden between 2008 and 2012, with only North Dakota and New Mexico increasing by 3.91 percentage points and 3.94 percentage points, respectively.

Forty-one states ended up with a lower debt burden in 2012 than in the first quarter of 2000; this difference was on average 1.78 percentage points. The 10 states that increased their debt levels did so by an average of 1.33 percentage points. Minnesota saw the largest changes across the three periods: this state’s debt burden started at 13.2 percent, increased to 33.6 percent, then returned to 11.8 percent in the first quarter of 2012. The state with the second-highest movement was Montana, which started at 15.4 percent, went to 23.0 percent, and then fell back to 12.2 percent.

*4/15/2013: With respect to the fraction of debt payments to total income, all values in this article have been updated since this page was first posted. For the initial state-level figures we used quarterly levels of debt payments. We have adjusted our calculations so that the level of quarterly debt payments is now annualized.