Behind the Numbers

Behind the Numbers

Behind the Numbers

An overall increase in household debt levels signals a movement toward more normal lending patterns with one major exception: the explosive growth in student loan debt.

April 25, 2014
Written by Dr. Patricia Buckley

Household debt

An overall increase in household debt levels signals a movement toward more normal lending patterns with one major exception: the explosive growth in student loan debt.

The most recent Quarterly report on household debt and credit from the New York Federal Reserve Bank brought the welcome news that lending to households finally started to increase in 2013. The fourth quarter of 2013 saw the largest increase in total consumer indebtedness since 2007 and the first four-quarter increase since late-2008 in total outstanding debt. This is positive news in that it reflects the ability and willingness of individuals and families to invest in longer-lived assets such as homes, autos, and education. However, the changing composition of household debt due to substantial increases in student loan debt raises concerns.

As shown in figure 1, consumers began reducing their debt levels as unemployment rose and the value of houses in many areas of the country plummeted during the recession that began in December 2007 and lasted through June 2009. Some of the debt reduction was voluntary as consumers cut back on spending, but some of the contraction was involuntary reductions stemming from foreclosures and other types of default. It has only been in the last couple of quarters that debt has begun to increase.


Figure 1. Total debt balance and its composition

Mortgages are the largest component of household debt. The calendar year 2013 ended a four-year streak of year-over-year declines as mortgage balances increased on net by $16 billion. Auto loans were also up for the year, increasing by $80 billion. Credit card debt was up only slightly ($4 billion), and revolving home equity loans declined by $34 billion. However, the largest change in 2013 was in student loans, which increased by $114 billion.

To take a longer-term view, table 1 provides a comparison of household debt prior to the start of the recession with the current situation. In nominal dollars, overall debt remains 7 percent below its prerecession level, with mortgage debt alone currently over a trillion dollars lower than it was in the fourth quarter of 2007. Student loan debt is the only category that consistently increased in size during and after the recession. This doubling of student loan indebtedness moved this category of debt from the fifth largest at the end of 2007 to the second-largest category of debt after mortgages in 2013.

Table 1: Total household debt

In billions
07:Q4 13:Q4 07:Q4 13:Q4
Mortgage 73.6% 69.9% 9,101 8,049
HE revolving 5.2% 4.6% 647 529
Auto loan 6.6% 7.5% 815 863
Credit card 6.8% 5.9% 839 683
Student loan 4.4% 9.4% 548 1,080
Other 3.4% 2.8% 422 317
Total 100% 100% 12,372 11,521

Source: FRBNY Consumer Credit Panel/Equifax.

This rise in student loan debt is particularly troubling since it is the only category of loans where delinquencies are also increasing. Figure 2 shows that in the aftermath of the recession, serious delinquencies—balances being 90 days or more in arrears—in mortgages, revolving home equity loans, auto loans, and credit cards have fallen, but only credit card delinquencies are near their prerecession levels. Balance figures that show rising delinquencies in student loans confirm the findings of the Department of Education, which calculated that the three-year default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010 in federal student loans. Figure 2. Percent of balance 90+ days delinquent by loan type

With lenders of all types requiring higher credit standards, the rising delinquencies of student loans, most of which are made to those just starting their careers, may have serious repercussions not only for the individuals impacted, but for economic growth going forward, as these individuals are limited in their ability to finance major purchases.


March 24, 2014
Written by Dr. Patricia Buckley & Dr. Daniel Bachman

Macroeconomic implications of the Affordable Care Act


The Affordable Care Act (ACA) is a significant change in the US economy’s institutional framework. These FAQs examine evidence for the direction and size of the ACA’s impact on overall economic activity in the United States. They do not consider whether the ACA will achieve its goals or how it might affect health care delivery and outcomes.

Q: What are the channels through which the ACA might affect GDP growth?

A: The ACA will affect GDP growth by reducing the supply of labor, as documented by the Congressional Budget Office (CBO), which would tend to reduce GDP growth. It might also increase GDP growth by reducing labor costs, if it succeeds in improving innovation and productivity growth in the health care sector. The ACA may also increase GDP growth in the short run by increasing the demand for health care goods and services. Overall productivity may increase if labor costs rise and businesses substitute capital for labor.

Q: Could the ACA create a recession or a significant slowdown in growth?

A: This seems very unlikely. The possible impacts—positive or negative—of the ACA are small compared to recession-creating events such as the Lehman collapse, the bursting of the stock market bubble in 2001, or the rise in oil prices in 1973. In addition, economic actors can anticipate many of the changes required by the ACA, and these changes take place gradually. This means the adoption of the ACA will not come as a sudden shock of the type that often generates recessions.

Q: Have economic forecasters lowered their forecasts because of the ACA?

A: From a macroeconomic perspective, the ACA was not large enough to affect GDP growth forecasts. Figure 1 compares the CBO forecast for real GDP before (January 2010) and after (August 2010) the passage of the Act. The CBO reduced the GDP growth rate forecast in 2012 (before the ACA was scheduled to have an effect), but the impact was rather small. Later CBO forecasts in 2011 and 2012 show a substantial decline in projected GDP growth in 2013, but the CBO explains this as the result of expected fiscal tightening (specifically, the removal of the 2001 and 2003 tax cuts and the elimination of extended unemployment benefits), which are larger events from the macroeconomic point of view.

Figure 1. CBO real GDP growth forecasts

Q: How much will the employer penalty on uninsured full-time workers affect firms’ demand for labor?

A: The Kaiser Family Foundation estimates that about 30 million full-time workers do not have health insurance. It is only the employers of these workers that face the penalty, although it is possible that some companies will prefer to pay the penalty rather than continue to insure their workers.

The penalty may be substantial. University of Chicago economist Casey Mulligan calculates the effective cost of this penalty at about $4,500 per worker per year. The tax applies only to companies with more than 50 workers, and only for those who work above a 30-hour weekly threshold. Some companies may also find that insuring their workers is cheaper than paying the penalty. This is particularly true for small firms that receive a tax credit when they insure their workers.

Because the penalty is per worker, it amounts to a larger tax on lower-paid workers (who are less likely to be insured). The impact of the penalty will therefore be felt most heavily in demand for lower-paid, less-skilled workers.

The CBO argues that the penalty will eventually be transferred to workers in the form of lower wages, and it will therefore not affect the demand for labor (except in certain cases, such as minimum wage labor). Therefore, the CBO includes the impact of the penalty in its estimates of the effect of the ACA on labor supply, rather than labor demand.

Q: How will the ACA affect the labor supply (the amount people wish to work)?

A: The CBO has done careful estimates of impact of the ACA on the supply of labor. The CBO estimates that hours worked will fall 1.5–2.0 percent because people may choose to work fewer hours or to exit the labor force. Because the labor impact will fall on low-paid workers, the impact on labor consumption is a lower 1.0 percent. The ACA creates the following incentives to reduce work effort:

  1. Some people may reduce hours worked to obtain access to Medicaid. However, this will be partially offset by enhanced eligibility for Medicaid among low-income, employed people, at least in states that have chosen to expand their Medicaid programs.
  2. The employer penalty will be passed on to employees (eventually) in the form of lower wages for non-insured workers.
  3. The ACA increases the payroll tax for Medicare for high-income workers and taxes high-cost health insurance plans. The CBO estimates that this will have a small impact on the labor force effort of affected workers.
  4. The ACA imposes a tax on people without health plans. Because most workers affected by this tax will pay an amount unrelated to work effort, the CBO estimates that this will not affect labor supply.
  5. The lower cost of health insurance plans for older workers may induce some of them to retire earlier.
  6. Some workers who would have applied for disability to obtain health insurance (because it was prohibitively expensive) may now stay in the labor force. On the other hand, the ability to purchase health insurance on exchanges may encourage others to apply for disability and leave the labor force. The CBO estimates this will have a slightly negative impact on labor supply.

The CBO estimates the impact to be a reduction in total hours worked. How much of this fall will be reflected in employees working fewer hours, and how much in a reduction in the number of those employed, cannot be estimated at this time.

Q: Will the ACA encourage firms to cut back on full-time employees and substitute part-time employees?

A: There would seem to be a clear incentive for firms that do not offer health insurance to offer more part-time work to avoid the penalty. However, data do not indicate that there has been an unusual growth of part-time employment yet. Figure 2 shows the share of part-time workers in the total labor force. It fell substantially during the recession, but it has been growing at a rate that is consistent with previous recoveries—although it is still very low. Figure 3 shows the share of part-time workers who are part-time for “economic reasons,” which essentially means they would prefer full-time work. This jumped from a relatively low 20 percent before the recent recession to above 30 percent, but it has been dropping. Although the level remains high, the rate of decline seems consistent with the economic recovery.

Both the CBO and the San Francisco Fed have concluded that there is not yet evidence that the ACA had a significant impact on the share of part-time workers.

Figure 2. Full-time

Figure 3. Part-time

Q: Could the ACA have a positive impact on economic growth?

A: The ACA may reduce the rate at which health care and health insurance prices rise, and therefore reduce the cost to businesses of adding employees. The lower cost of employment might lead to faster job growth. Harvard University economist David Cutler claims that the reduction in health insurance costs could amount to an additional 250,000–400,000 jobs each year over the next decade. (For comparison, the economy created an average of about two million jobs per year in the last three years.) Following the CBO’s assumptions, the lower cost of employment might lead to higher wages and additional labor supply, offsetting the negative impact of ACA on labor supply.

Q: Could the ACA’s impact on the supply and demand for health care be large enough to directly affect the economy?

A: By making health care more accessible to more people, the ACA may expand the demand for health care. Since the economy is currently at less than full employment, additional demand from any source, but certainly from health care, will be welcome. On the other hand, if the ACA succeeds in reducing unneeded testing, procedures, and drugs, demand for health care might fall, helping to drag recovery. It’s not possible to estimate the possible impacts of these factors, but the fact that they offset each other suggests that the direct impact of the ACA on health spending and on the economy as a whole will be relatively small.


February 21, 2014
Written by Dr. Patricia Buckley & Dr. Daniel Bachman

Behind the Numbers: Employment by sector

Economies rarely look the same after a recession. So where are the jobs being created?

As the US economy continues to work its way through the aftermath of the Great Recession, the focus remains on job creation. Four-and-a half years later, overall employment is still 851,000 below its prerecession peak. However, the jobs picture is anything but monochromatic; even as some sectors remain far below their prerecession employment levels, other sectors are experiencing strong job growth. The differing employment situations are, in large part, due to the resumption of long-term trends that were in place prior to the recession. A comparison of prerecession employment levels and current employment numbers provide insight into where job creation can be expected.

As shown in table 1, Health and Social Services, Leisure and Hospitality, and Business and Professional Services are the three sectors where employment increased the most from prerecession levels while also expanding their share of total employment. Together, these sectors have increased employment by more than 4 million since the December 2007 start of the recession. Each of these sectors was on an upward trajectory before the recession and should continue to produce higher-than-average employment gains.

  • An aging US population will likely beckon faster-than-average employment growth in the Health and Social Services sectors.
  • A growing retiree population, rising tourism, and changing lifestyles (fewer home-cooked meals, for example) suggest that employment growth will remain strong in the Leisure and Hospitality sectors.
  • Business and Professional Services employment should also enjoy faster-than-average growth as other industries continue to limit their own employment growth by contracting noncore services to outside experts.

Other notable employment gainers include Private Education Services, which continued an upward trend that started before the recession, and Mining, which is enjoying the fruits of growing energy production.

The Manufacturing and Construction sectors have experienced the greatest employment losses since December 2007, but their prognoses are different.

  • As firms increasingly view the United States as a cost-effective place to operate, manufacturing output will continue to rebound, but it will not be a major driver of employment growth because productivity continues to improve.
  • The outlook for construction is different. Although it is unlikely (and even undesirable) for employment in Construction to return to its prerecession level, as the overall employment situation continues to improve, the Construction sector stands to benefit from considerable pent-up demand. The US population has been growing more rapidly than housing units throughout the downturn, and at some point, supply will need to catch up.

Government is another sector where employment remains substantially lower than its prerecession levels. Employment at the federal, state, and local levels are all lower, but the local level, which accounts for 64 percent of government employment, has suffered 79 percent of the job losses.

While they have not reached their December 2007 levels, Wholesale Trade, Retail Trade, and Transportation and Warehousing are all on an upward trajectory. Employment in the Utilities sector has been flat over the last three years, and absent a major federal infrastructure initiative, it will likely remain so. Information and Financial Service employment will continue to be limited by productivity improvements and consolidation.

Table 1: Employment by sector

Dec-07 Jan-14 Change Dec-07 Jan-14 Percentage point change
In thousands % of total nonfarm employment
Nonfarm 138,350 137,499 −851
Private 115,974 115,686 −288
Mining and Logging 740 890 150 Mining and Logging 0.5% 0.6% 0.1%
Construction 7,490 5,922 −1,568 Construction 5.4% 4.3% −1.1%
Manufacturing 13,746 12,075 −1,671 Manufacturing 9.9% 8.8% −1.2%
Wholesale Trade 6,038 5,810 −228 Wholesale Trade 4.4% 4.2% −0.1%
Retail 15,571 15,260 −311 Retail 11.3% 11.1% −0.2%
Transportation and Warehousing 4,548 4,563 15 Transportation and Warehousing 3.3% 3.3% 0.0%
Utilities 557 550 −8 Utilities 0.4% 0.4% 0.0%
Information 3,024 2,679 −345 Information 2.2% 1.9% −0.2%
Financial 8,281 7,900 −381 Financial 6.0% 5.7% −0.2%
Professional and Business Services 18,051 18,866 815 Professional and Business Services 13.0% 13.7% 0.7%
Education Services 2,976 3,351 374 Education 2.2% 2.4% 0.3%
Health and Social Services 15,578 17,877 2,299 Health and Social Services 11.3% 13.0% 1.7%
Leisure and Hospitality 13,550 14,461 911 Leisure and Hospitality 9.8% 10.5% 0.7%
Other Services 5,516 5,484 −32 Other Services 4.0% 4.0% 0.0%
Government 22,376 21,813 −563 Government 16.2% 15.9% −0.3%

January 24, 2014
Written by Dr. Patricia Buckley & Dr. Daniel Bachman

Behind the Numbers: US government debt

Markets have been more than willing to invest in the US government, as evidenced by record low interest rates. But how long can this continue?

Recent years have seen large US federal deficits and as a result, a large increase in public holdings of government debt—both in dollars and relative to GDP. “Debt to GDP” is actually the more important of the two measures because it reflects the changing ability of the government to generate revenue in order to repay its debt. However, irrespective of the measure considered, US debt increases may be on an unsustainable path.

  • Public holdings of debt doubled as a share of GDP between 2000 and 2012, from 33 percent to 70 percent. Just prior to the beginning of the recession in 2007, it was 35 percent.
  • In 2009, debt jumped by 10 percent of GDP to 52 percent in a single year. This increase was from a combination of factors stemming from the severity of the economic downturn—tax receipts fell, and automatic stabilizers, such as expenditures on unemployment insurance, increased. There was also the initial impact of the stimulus spending authorized by the American Recovery and Reinvestment Act of 2009.
  • Holdings of US debt by foreigners jumped from 10 percent of GDP in 2000 to 34 percent of GDP in 2012. Domestic holdings rose a less steep (but still considerable) 14 percentage points, from 22 percent of GDP in 2000 to 36 percent of GDP in 2012. Foreign willingness to hold US debt likely reflects the scarcity of alternative safe assets.
  • The Congressional Budget Office (CBO) projects a small reduction of the debt-to-GDP ratio over the next five years, to a low of 68 percent in 2018. The CBO then expects debt to rise to 100 percent of GDP by 2038—a level last seen in 1946.
  • The rise in the debt ratio in the CBO’s projections is driven by an increase in spending from 21 percent to 26 percent of GDP. The CBO assumes that revenues will also increase (as the economy recovers) but at a more modest 2 percent of GDP.

Figure 1. Debt held by the public, CBO forecast

Figure 2. US debt by nationality of holder

Because of economic problems elsewhere in the world—including, most particularly, the Eurozone—the United States has been able to continue to attract investors from around the world, even while providing very low rates of return. This state of affairs is highly unlikely to be permanent. Potential recovery in the Eurozone and the increasing size of the US debt will likely require the United States to provide higher rates of return to attract investors to finance our debt. The CBO estimates that interest payments alone will rise from the current level of 1.3 percent of GDP to 4.9 percent of GDP by 2038 as interest rates return to normal and US debt continues to grow. This could become worse if the ability of the US government to repay its debt is questioned by international investors that start requiring a higher premium on US debt.


Dr. Patricia Buckley

Dr. Patricia Buckley is director of Economic Policy and Analysis at Deloitte Research, Deloitte Services LP.

Dr. Daniel Bachman

Dr. Daniel Bachman is a senior manager for US macroeconomics at Deloitte Services LP.

Behind the Numbers
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