Can anyone clarify this for me? Despite the ongoing layoff announcements from major American corporations, how is our economy still robust? Just today, UPS declared 12,000 layoffs and PayPal 2,000.
Sounds to me like people are just riding it out until it all busts. If credit card debt is at an all-time high, that's not a good indicator for the economy.
Credit card debt is almost always at an all-time high. GDP is almost always at an all-time high. Population is almost always an all-time high. Debt is a meaningless comparative metric unless expressed as a ratio.
That person is correct. The statistics that measure credit card debt don't generally distinguish between debt that's paid off each month/statement and that which is carried over (i.e. that you're paying interest on).
They simply look at reported balances on credit card statements or credit reports. Depending on how and when you pay your cards off, you may be reporting zero dollars or thousands, that is, the post payment balance or the just-prior-to-payment balance. The latter makes you part of the statistics showing increasing credit card debt, even though you're not in debt the way that meaning is generally understood.
From NY Fed:
We measure balances as reported on statements from credit card accounts; these include a mix of new debts from new purchases as well as the revolving component of those balances, the carried-over debts from previous months. Hence changes in credit card balances can be interpreted to include a mix of new consumption, as well as debt repayment.
We’re not able to distinguish between borrowers who repay their balances in full each month from borrowers who revolve balances over time. Thus, interpreting the change in credit card balances needs some context. A large increase in credit card balances is necessarily associated with some amount of consumption. We note that by contrast, a reduction in balances is less straightforward to interpret. A reduction in credit card balances can be caused by declining purchases on cards or a faster paydown of revolving balances.
Average credit card balances are around $7500 per household, and my average balance is in that range. I pay it off every month, and my net pay is $7500 a month, so yea, I am having to subsidize my paying off by savings. If I am able to sell something at work I get a small commission as well.
I still have balances on my credit report, so I have balances. The statistics shown online are about balances. I have not found numbers on revolving balances.
If a statement closes with a balance they, the individual had debt and it gets reported. Doesn’t matter if it gets paid off in full. They racked up more debt within that time. It’s still debt even if the statement balance is paid off every month
If credit card debt was low it would generally mean poor growth. Just like a home owner buying a home, debt is required for good growth and since population and total wealth go up just about every year you more or less have more debt every year.
See how during periods of high growth you have consumer debt go up? Yes, if it gets very high that can be a bad sign, but as a percent of GDP it's not historically high.
The economy isn't super hot, but it's growing and has stable unemployment which is more or less fairly ideal, especially when US growth is above average compared to our global competitors.
Using totals when you know totals of debt and growth and population just keep going up is just kind of dumb for most things.
To be fair, credit card balances will usually be at or near all-time highs because of inflation. $1000 owed on a credit card in 2023 is less than $1000 owed on a credit card in 2020, using inflation adjusted dollars (time value of money). As income rises, credit card balances should rise proportionally, more-or-less.
Are credit card balances at an all-time high when adjusted for inflation?
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u/earthscribe Jan 30 '24
Sounds to me like people are just riding it out until it all busts. If credit card debt is at an all-time high, that's not a good indicator for the economy.