ECONOMIC REPORT OF THE PRESIDENT

above GDP growth. In fact, at the annual revision in July, BEA revisited
its seasonal adjustment and incorporated revised source data, which led
to an upward revision in 2015:Q1 GDP growth.
It has long been the practice in many economic analyses, including
those at CEA, to combine product- and income-side measures of output
as a way to reduce measurement error and gain a more accurate picture
of the economy. In fact, CEA began using an average of GDP and GDI
with the 1997 Economic Report to the President. No single measure of the
economy is perfect. Measures are subject to measurement error, transitory
shocks, and conceptual challenges. As a result, it is important to look
at multiple measures of economic conditions and over longer periods of
time to discern trends. Widening the focus from GDP to other measures
of output like GDO provides a more accurate and forward-looking
picture of the state of the economy.
income expectations was particularly welcome and likely supported spending
growth in 2015. Expected real income growth, as measured in the
Michigan Survey, fell sharply during the recession and remained depressed
even after actual real income growth had begun to recover. This heightened
pessimism contrasted with the past several decades—when income expectations
and actual income growth tended move together reasonably well
(Figure 2-16; Sahm 2013). Unusual caution about income prospects may
have weighed on consumer borrowing and spending growth. The rebound
in income expectations in 2015 was a sign that the extra pessimism may have
begun to wane.
Meanwhile, the debt of U.S. households relative to their disposable
income continued to fall (Figure 2-17). Before the financial crisis, household
debt relative to income rose dramatically, largely due to net mortgage
originations, and then declined sharply after the crisis, a pattern known as
“deleveraging.” Charge offs of delinquent mortgage debt played an important
role in lowering household debt, but the decline in new mortgage originations
played a role as well (Vidangos 2015). By the end of 2015:Q2, the
debt-to-income ratio was at its lowest level since 2002. The level of mortgage
debt relative to income continued to decline in 2015, while consumer credit
(including credit card, auto, and student loans) relative to income increased
slightly.
Moreover, with historically low interest rates, the amount of income
required to service these debts has fallen dramatically. Estimates based on
aggregate data, could mask higher debt burdens for some families; that
is, the health of personal finances varies substantially across households.
78 | Chapter 2