Liberty Street Economics

May 20, 2021

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Jessica Lu and Wilbert van der Klaauw

It is common during recessions to observe significant slowdowns in credit flows to consumers. It is more difficult to establish how much of these declines are the consequence of a decrease in credit demand versus a tightening in supply. In this post, we draw on survey data to examine how consumer credit demand and supply have changed since the start of the COVID-19 pandemic. The evidence reveals a clear initial decline and recent rebound in consumer credit demand. We also observe a modest but persistent tightening in credit supply during the pandemic, especially for credit cards. Mortgage refinance applications are the main exception to this general pattern, showing a steep increase in demand and some easing in availability. Despite tightened standards, we find no evidence of a meaningful increase in unmet credit need.

Posted at 7:00 am in Credit, Expectations, Housing, Pandemic | Permalink

May 19, 2021

What’s Next for Forborne Borrowers?

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

We’ve spent the first three posts of this series discussing who has entered mortgage forbearance, and how their personal finances have developed during the course of the pandemic. In this fourth and final post, we will use Consumer Credit Panel (CCP) data to examine the profiles of those who remain in forbearance and those who have exited, and how the performance of household credit may evolve as the force of the pandemic begins to ebb and the economy reopens and normalizes.

Posted at 11:48 am in Pandemic | Permalink

Small Business Owners Turn to Personal Credit

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

In our first post in this series we showed that mortgage provisions under the CARES ACT and its subsequent extensions resulted in a rapid take-up of mortgage forbearances, under which borrowers had the option to pause or reduce debt service payments without inducing a delinquency notation on their credit reports. Here we examine the forbearance take-up rate of a group of mortgage borrowers we expect to have been particularly hard hit by the pandemic recession: small business owners. Relatively little is known about how small business owners have fared over the past year in terms of their personal finances. Were they able to continue making mortgage payments on their homes? Did they draw on home equity to help fund their business operations?

Posted at 11:47 am | Permalink

What Happens during Mortgage Forbearance?

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

As we discussed in our previous post, millions of mortgage borrowers have entered forbearance since the beginning of the pandemic, and over 2 million remain in a program as of March 2021. In this post, we use our Consumer Credit Panel (CCP) data to examine borrower behavior while in forbearance. The credit bureau data are ideal for this purpose because they allow us to follow borrowers over time, and to connect developments on the mortgage with those on other credit products. We find that forbearance results in reduced mortgage delinquencies and is associated with increased paydown of other debts, suggesting that these programs have significantly improved the financial positions of the borrowers who received them.

Posted at 11:46 am in Household Finance, Housing, Inequality | Permalink

Keeping Borrowers Current in a Pandemic

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Federal government actions in response to the pandemic have taken many forms. One set of policies is intended to reduce the risk that the pandemic will result in a housing market crash and a wave of foreclosures like the one that accompanied the Great Financial Crisis. An important and novel tool employed as part of these policies is mortgage forbearance, which provides borrowers the option to pause or reduce debt service payments during periods of hardship, without marking the loan delinquent on the borrower’s credit report. Widespread take-up of forbearance over the past year has significantly changed the housing finance system in the United States, in different ways for different borrowers. This post is the first of four focusing attention on the effects of mortgage forbearance and the outlook for the mortgage market. Here we use data from the New York Fed’s Consumer Credit Panel (CCP) to examine the effects of these changes on households during the pandemic.

Posted at 11:45 am in Banks, Credit, Financial Institutions, Housing, Pandemic, Recession | Permalink

May 17, 2021

How Does U.S. Monetary Policy Affect Emerging Market Economies?

Ozge Akinci and Albert Queralto

The question of how U.S. monetary policy affects foreign economies has received renewed interest in recent years. The bulk of the empirical evidence points to sizable effects, especially on emerging market economies (EMEs). A key theme in the literature is that these spillovers operate largely through financial channels—that is, the effects of a U.S. policy tightening manifest themselves abroad via declines in international risky asset prices, tighter financial conditions, and capital outflows. This so-called Global Financial Cycle has been shown to affect EMEs more forcefully than advanced economies. It is because higher U.S. policy rates have a disproportionately larger impact on rates in EMEs. In our recent research, we develop a model with cross-border financial linkages that provides theoretical foundations for these empirical findings. In this Liberty Street Economics post, we use the model to illustrate the spillovers from a tightening of U.S. monetary policy on credit spreads and on the uncovered interest rate parity (UIP) premium in EMEs with dollar-denominated debt.

Posted at 7:00 am in Exchange Rates, Financial Markets, International Economics, Monetary Policy | Permalink

May 13, 2021

Who’s Ready to Spend? Constrained Consumption across the Income Distribution

David Dam, Davide Melcangi, Laura Pilossoph, and Will Schirmer

Spending on goods and services that were constrained during the pandemic is expected to grow at a fast pace as the economy reopens. In this post, we look at detailed spending data to track which consumption categories were the most constrained by the pandemic due to social distancing. We find that, in 2019, high-income households typically spent relatively more on these pandemic-constrained goods and services. Our findings suggest that these consumers may have strongly reduced consumption during the pandemic and will likely play a crucial role in unleashing pent-up demand when pandemic restrictions ease.

Posted at 7:05 am in Equitable Growth, Household Finance, Inequality, Pandemic | Permalink

Racial and Income Gaps in Consumer Spending following COVID‑19

Ruchi Avtar, Rajashri Chakrabarti, Maxim Pinkovskiy, and Giorgio Topa

This post is the first in a two-part series that seeks to understand whether consumer spending patterns during the COVID-19 pandemic evolved differentially across counties by race and income. As the pandemic hit and social distancing restrictions were put into place in March 2020, consumer spending plummeted. Subsequently, as social distancing restrictions began to be relaxed later in spring 2020, consumer spending started to rebound. We find that higher-income counties had a considerably steeper decline and a shallower recovery than low-income counties did. The differences by race were also sizeable as the pandemic struck but became considerably more muted after summer of 2020. The decline and the recovery until the end of summer were sharper for majority-minority (MM) than majority nonminority (MNM) counties, while both sets of counties showed similar growth in spending after that. The second post in this series highlights the goods and services that were most adversely affected (or “constrained”) by the pandemic. Then, differentiating households by income, that post explores which households were more exposed to these pandemic-constrained expenditure categories.

Posted at 7:00 am in Equitable Growth, Household Finance, Inequality, Pandemic | Permalink

May 12, 2021

Credit Card Balance Declines Are Largest Among Older, Wealthier Borrowers

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Total household debt rose by $85 billion in the first quarter of 2021, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Since the start of the pandemic, household debt balances have increased in every quarter but one—the second quarter of 2020, when lockdowns were in full effect. The Quarterly Report and this analysis are based on the New York Fed’s Consumer Credit Panel, which is based on Equifax credit data.

Posted at 11:00 am in Credit, Equitable Growth, Household Finance, Pandemic | Permalink

May 10, 2021

Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit

Jaison R. Abel and Richard Deitz

Women’s labor force participation grew precipitously in the latter half of the 20th century, but by around the year 2000, that progress had stalled. In fact, the labor force participation rate for prime-age women (those aged 25 to 54) fell four percentage points between 2000 and 2015, breaking a decades-long trend. However, as the labor market gained traction in the aftermath of the Great Recession, more women were drawn into the labor force. In less than five years, between 2015 and early 2020, women’s labor force participation had recovered nearly all of the ground lost over the prior fifteen years. Then the pandemic hit, erasing these gains. In recent months, as the economy has begun to heal, women’s labor force participation has increased again, but there is much ground to be made up, especially for Black and Hispanic women. A strong labor market with rising wages, as was the case in the years leading up to the pandemic, will be instrumental in bringing more women back into the labor force.

Posted at 7:00 am in Demographics, Human Capital, Labor Market, Pandemic | Permalink

Markets & Policy Implementation

Liberty Street Economics

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

What’s Next for Forborne Borrowers?

Small Business Owners Turn to Personal Credit

What Happens during Mortgage Forbearance?

Keeping Borrowers Current in a Pandemic

How Does U.S. Monetary Policy Affect Emerging Market Economies?

Who’s Ready to Spend? Constrained Consumption across the Income Distribution

Racial and Income Gaps in Consumer Spending following COVID‑19

Credit Card Balance Declines Are Largest Among Older, Wealthier Borrowers

Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit

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