We know that GDP growth relies almost entirely (over 75%) on consumer spending. We also know that starting in 2000 consumers went on a borrowing binge to purchase homes and other items, thus boosting the economy through debt. In the next three charts I will compare the growth of such household debt to the growth of GDP.
The first chart shows the annual rates of nominal GDP growth and household debt (mortgage plus consumer debt) for each year - click to enlarge. The disparity between the two becomes very wide after 2000 - debt grew much faster than GDP. The last two bars - showing a clear deceleration - are for the first half of 2007.
The second chart shows the difference between the growth rates, i.e. how much more debt grew than GDP, in percentage terms. From 1975 to 2000, household debt grew on average 1.9% faster than GDP, but from 2000 onwards the difference rose as high as 7.3% and averaged 5.1%. Again, there is a clear slowdown in the first half of 2007 (last bar).
The third chart shows the RATIO of debt growth to GDP growth, to better examine their relationship independent of absolute values. Whereas until 2000 household debt grew somewhat faster than GDP (the average ratio of debt growth to GDP growth was 1.3), afterwards the ratio zoomed as high as 3.5 and is still quite high, though tapering off.
Conclusion: Our economic growth during the past few years was almost entirely a result of households consuming by going deeper into debt. It's not like we didn't know this already, of course, but a picture is worth a thousand words.
What does this mean for the future? As household credit becomes tighter - as is already happening - the economy will slow down fast, unless it disengages from consumer spending even faster and starts growing more in manufacturing, exports and capital investment.