Reader Ole Keynesian continues his transformation into the Everyday Economist:
The Everyday Economist and the Coupon Theory of Economic Growth
Last weekend, Mrs. Everyday Economist commented that the number of grocery coupons in the Sunday paper has been increasing over the last few months. “The economy must be in trouble”, Mrs. E.E. said. “I can tell when times are good, because the coupons dry up”.
Hmmm… the most recent issue of Business Week reported that:
In January, revolving credit, made up largely of credit-card debt, was up $52.7 billion, or 6.4% from a year ago. Consumers haven’t racked up revolving debt at such a clip since late 2001. And the pace looks set to quicken in February. A large chunk of the $6.8 billion increase expected by economists likely will be in the form of new credit-card debt, as nonrevolving credit probably cooled off with slower auto sales.
The timing of the acceleration in revolving credit suggests consumers are turning to their credit cards as a partial replacement for reduced mortgage equity withdrawal, says Goldman Sachs senior economist Ed McKelvey. According to his calculations, increases in revolving credit have offset about 20% of the decline in cash-out refinancing or increased home-equity lines of credit since late 2005.
So combining Mrs. E.E’s observation with Business Week’s, should we draw the conclusion that consumers are accumulating more credit card debt in part because it’s getting harder and harder to finance current Grape Nuts spending by tapping home equity?