The Wall Street Journal reports that consumers are finally feeling the effects of high interest rates. They are buying fewer houses (true), fewer cars (not really true), and loading up their credit cards:
“Consumers are carrying much higher balances than they were two years ago,” said Charlie Wise, head of global research and consulting at TransUnion. “There are always people at the margin where any increase in rates is going to hurt them.”
That's really, really not true:
Even if you cherry pick the low point of credit card balances exactly two years ago, the average credit card balance is only up 4%. If you compare to the pre-pandemic level, balances are down 16%. And delinquencies are stable. I wish reporters would check this kind of stuff instead of just passing along whatever story some expert tells them.
Yes, especially an "expert" employed by a credit rating agency. If he can spook businesses about credit-worthiness, he's going to get a whole lot more credit checks from it.
Chumming the water for the sharks.
I assume the adjustment for inflation accounts for the two different takes.
Balances are much higher in nominal terms but relatively flat in real terms?
Nominal debt servicing payments as a portion of income is likely the most important single piece of info.
The big drop in real balances came in the pandemic, not in the inflation. Maybe people used covid checks to pay off balances - or at least weren't running up restaurant bills. After about 2020 a rise in nominal balances seems to have been mostly balanced by inflation. On average wages have kept up with inflation.
Unless this measure is unrepresentative, the WSJ is just wrong. Credit card interest rates have gone up with the Fed raises, but proportionately not as much as say mortgage rates:
https://fred.stlouisfed.org/series/TERMCBCCALLNS
Sure, but monthly credit card bills have a variable rate. That mortgage is locked in for years if not decades.
I look at that chart and indeed see people steadily loading up their credit cards, with a one time step down courtesy of the pandemic, perhaps thanks to the money sent around in stimulus.
Again Kevin with the non zero scale distorts things, a jump from $1500 to $1700 and then back down to $1600 seems pretty meh to me
If this came off the WSJ editorial page, you can assume it's just right wing bushwa. Although with Murdoch at the helm, even the "factual" news needs to be taken with a grain or two of salt.
I get that the balances dropped significantly in 2020 due to stimulus measures, but it sure looks like credit card balances have jumped significantly in nominal terms over the last year or so. Combined with the knowledge of higher interest rates, this paints a different picture than Kevins inflation adjusted graph.
https://fred.stlouisfed.org/graph/?g=19jf6
Yuuuuupppp.
You need to not adjust this for inflation. It's lying.
You need to compare nominal balances vs. nominal wages/earnings.
I refer you to this boring old chart at FRED. Notice that the 2020-to-present shape looks basically like the chart in this post, meaning that the balances people are carrying are roughly the same proportion of their income as they were pre-pandemic. https://fred.stlouisfed.org/series/LES1252881600Q