An economic metric can simultaneously be getting worse and be good. It can also be both better and bad. That’s because “worse” and “better” are relative terms, while “good” and “bad” are absolute terms.
Think of it like recovering from an illness. You might feel better today than you did yesterday, even though you still feel crummy overall. Or consider your running speed: maybe you used to run a six-minute mile, but now it takes you seven. Your time has objectively gotten worse, but a seven-minute mile is hardly a bad performance.
This same principle applies to the state of household finances, which can be described as getting worse, but still being fundamentally good. A recent report on household debt and credit from the Federal Reserve Bank of New York shows that the amount of mortgage and student loan debt transitioning into early delinquency rose in the last quarter. Researchers pointed out that the significant jump in student loan delinquencies reflects the ongoing effects of payments resuming after the extended pandemic forbearance period.
While delinquency rates for auto loans, credit cards, and home equity loans held mostly steady, the rates for all forms of debt have worsened from their unusually low points just a few years ago. The total amount of debt in some stage of delinquency has climbed to 4.8%, which is the highest level since 2017.
To be clear, these metrics have indeed gotten worse, and few would dispute that. However, it’s crucial to recognize that they have mostly normalized to levels seen during the pre-pandemic economic expansion. In other words, household finances have shifted from unusually strong levels to relatively worse levels that are still arguably good.
This explains why measures of economic activity, like personal consumption expenditures, have continued to climb to record levels even as these financial metrics have softened. Americans have had money to spend, and they’ve been spending it.
Analysts at a major financial institution have also weighed in, noting that while the rise in delinquent debt grabs headlines, the risk it poses appears limited. The ratio of seriously delinquent debt to income is around 2.5%, which is roughly in line with pre-pandemic levels and far from the nearly 10% levels seen after the 2008 financial crisis. Another common measure, household debt service payments as a percent of disposable income, has been deteriorating for years but remains relatively low on an absolute basis.
The key takeaway is that context matters. When you see data that’s getting better or worse, it’s essential to zoom out and assess whether the situation is fundamentally good or bad. This applies to many metrics: inflation rates are improving but remain above target, job creation has slowed but is still positive, and retail sales growth has stalled but is hovering at record highs.
This isn’t to say we should ignore negative trends. Worsening developments certainly deserve attention, as they could eventually reach levels that are genuinely problematic. But for now, understanding the difference between a relative change and an absolute state provides a much clearer picture of the economic landscape.
