Going with debt relative to income, I'll compare household debt to "disposable" personal income (DPI), the measure of "after tax" income.
In FRED's Table 2.1. Personal Income and Its Disposition: Annual they subtract "personal current taxes" from "personal income" to get "disposable personal income". Then, from disposable personal income they subtract three categories of cost
- personal consumption expenditures,
- personal interest payments, and
- personal current transfer payments
and what's left is called "personal saving".
Hey, I'm just making sure it makes sense to subtract household interest cost from DPI. Where else?
Funny you should ask. Because "Personal interest payments" is half or less than half the interest that is paid by households:
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| Graph #1: "Personal Interest Payments" as a Percent of the Monetary Interest Paid by Households |
Why? They have their reasons. Apparently the rest of the interest is counted as business expense. According to the CHAPTER 12: RENTAL INCOME OF PERSONS PDF,
The housing stock provides a flow of housing services that are consumed by persons who rent their housing and by persons who own the housing they occupy (referred to as “owner-occupiers”). In the NIPAs, owner-occupiers are treated as owning unincorporated enterprises that provide housing services to themselves in the form of the rental value of their dwellings.
Chapter 12 continues:
Thus, personal consumption expenditures (PCE) for housing services includes both the monetary rents paid by tenants and an imputed rental value for owner-occupied dwellings (measured as the income the homeowner could have received if the house had been rented to a tenant)...
So the "Personal consumption expenditures", which is counted in GDP, includes the cost of an imaginary monetary rent that homeowners (called "owner-occupiers") pay to live in their own homes. Conveniently, this cost is offset by imaginary income:
... and rental income of persons includes the monetary income earned by landlords and an imputed rental income earned by owner-occupiers.
Apparently, this imaginary rental income is counted as an addition to homeowners' income, offsetting the imaginary cost of paying the rent. This imagining allows "owner-occupied" houses to be "treated as fixed assets" for accounting purposes, just as "tenant-occupied" houses are.
In a paper on modeling imputed rent, Arnold J. Katz points out that "The rental value of owner‐occupied housing ... accounts for about 8 percent of GDP". Katz is right. Unbelievably, in 2022, imputed rent added two trillion dollars to GDP.
Oh, they have their reasons.
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