(I published a version of this article on The DIV-Net website on November 30, 2008)
As the below chart notes, U.S. GDP has grown to over $14 trillion. At the same time, consumer debt has grown to over $14 trillion as well. The average level of consumer debt going back to 1953 is only 53%. The issue here is consumer debt has fueled a large part of the economic growth in the U.S. Since early 2007 though, consumer debt has begun to decline as a percentage of GDP.
(click to enlarge)
Another economic variable investors can track to gain some perspective on the consumer is the Personal Consumption Index (PCE).
Source: New York Times
So if consumer spending is potentially constrained in the next economic recovery cycle, it will be important for investors to invest in those firms that demonstrate they have the ability to grow earnings in the future. Evaluating the dividend practices of companies is one way to gain insight into a company's prospective earnings potential.