Economists' Outlook

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Households’ Perception of Being Able to Make a Debt Payment is Improving

There have been many changes in the economy since the pandemic started to spread in March. The stock market took an initial hit but has roared back. The number of unemployed peaked to as high as 23 million in April but has climbed down to 13.6 million as of August. The unemployment benefits that about 29 million people receive have provided a boost to household incomes, enabling them to stay afloat and pay their debt and bills.

In this blog, let’s look at the July 2020 Survey of Consumer Expectations1 by the Federal Reserve Bank of New York and unemployment data by state level.

Consumers’ ability to pay down debt has improved and appears to be at an all time high. This index goes back to 2013 and debts are being paid despite the effects of the pandemic. In the July 2020 survey, consumers on average reported that there was about a 10% chance they won’t likely be able to make a minimum debt payment. This is an improvement compared to the April survey when, on average, respondents reported a 16% chance they won’t be able to make a minimum debt payment.  

Line graph: Mean Probability of Not Being Able to Make Minimum Debt Payment Over Next 3 Months

Probability of Being Delinquent by Age

The data shows that since January 2019, those under 40 years of age are having a harder time making their minimum debt payments over the next three months. It is understandable for those over 60 years of age to have more resources, as well as having less debt. However, the pandemic had an impact on all age ranges where there was a clear jump in April of 2020. Improvements in job gains have helped individuals pay down their debts. It is also likely that higher incomes have had an impact on individual’s ability to pay debt.  On average, among the under 40-year old household heads who responded to the survey, there was a 14% chance that won’t likely be able to make a minimum payment on their debt in the next three months. However, this is lower than the 23% chance that won’t be able to pay make a minimum payment in April.  Among the 40 to 60-year heads of households, they reported on average a 12% chance they won’t likely be able to make a minimum payment, also a decline from the 18% probability in March. Among those over 60-year old, only 4% were likely unable to make a minimum debt payment, also a decline from the 10% probability in April.

Line graph: Delinquency Rate by Age

Probability of Being Delinquent by Income

Income levels also have an impact on one’s ability to repay their debt. Individuals who made less than $50,000 had a more difficult time making their minimum debt payment over the next three months. Households who made more than $100,000 did not experience the same challenge paying their debt even during the pandemic. However, households with incomes at $100,000 and less experienced more of a challenge in April of 2020. As of July 2020, household heads across all age ranges are currently more likely to be able to make a minimum payment than in January of 2019 which suggests incomes have improved over this time period. Households with income of less than $50,000 reported an 11% chance of not being able to make a minimum debt payment compared to a 23% chance in April.

Line graph: Delinquency Rate by Income

Probability of Being Delinquent by Geographic Region

By region of the respondent, the probability that households won’t be able to make a debt payment declined across all regions compared to the probability in April. However, there was a slight increase in the probability of not being able to make a debt payment in the next three months in the West region.

Line graph: Regional View of Debt Payments

Unemployment rates definitely were impacted by the virus. Prior to the pandemic unemployment rates were around 3%-4%. Post pandemic rates shot up to 15% in the top five states. Nevada lead all states with the largest drop in unemployment rate from April to July 2020.

Line graph: Top States Where Unemployment Declined from April to July

Increases in incomes will help many families continue to pay down their debt and pay their bills. Falling unemployment rates are a good sign for the current economy. More people back to work should help increase spending as well as increase the amount of families who can pay their rent and their mortgage. Continued job creation and states opening safely will help provide support for the economy during these times.

1 An Overview of the Survey of Consumer Expectations,


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