CNN published an article today, titled “What’s Really Happening to the American Economy”. Most of the points are familiar, but one graph was interesting – credit card debt:
Source: CNN.
Despite the usual complaints that this number was not normalized to disposable personal income, or GDP, this struck me as the funniest indicator I could find. Here are the typical credit card debt and delinquency rates.
Figure 1: Credit card debt (nsa) to personal disposable income, % (blue, left scale), and credit card delinquency rate for all commercial banks, % (tan, right scale). The NBER has defined recession days as shaded in gray. Source: NY Fed; Federal Reserve Board and BEA via FRED, NBER, and author’s statistics.
So average credit card debt is down in Q2, but delinquencies are up. This suggests that something is happening, for some segments of the population, even if household debt to GDP and household debt service to disposable income is decreasing.
Figure 2: Household debt to GDP, % (blue, left scale), and debt service to disposable income level, % (tan, right scale). The NBER has defined recession days as shaded in gray. Source: IMF via FRED, Federal Reserve Board via FRED, NBER.
Debt service may remain constant as interest rates rise due to the increase in the amount of the loan. Therefore, debt problems are likely to put more pressure on some income segments than others.
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