It’s been said that a lower inflation rate (disinflation)
is like when your basement is filling with water, but not as fast as before.
Below are links to a recent NY Post Story and a month-old CNN story covering rising credit delinquencies in credit cards and auto loans.
From the NYPost
By Lisa Fickenscher
Published Sep. 4, 2023, 4:16 p.m. ET
Inflation-squeezed Americans are defaulting on their credit cards and auto loans at levels not seen since the financial crisis – and the struggle to pay their bills is poised to get worse as interest rates rise and the moratorium on student loans expires.
Low- and middle-income earners have been especially hit hard by soaring prices on everything from rent, groceries, and new and used cars despite the Federal Reserve’s attempts to tamp down stubbornly-high inflation.
This year, credit card delinquencies have hit 3.8%, while 3.6% have defaulted on their car loans, according to credit agency Equifax. . . .
From CNN
By Matt Egan, CNN
Updated 11:20 AM EDT, Thu August 10, 2023
New York
CNN
—
More Americans are failing to make payments on their credit cards and auto loans, another sign of rising financial pressure on consumers.
New credit card and auto loan delinquencies have now surpassed pre-Covid levels, according to a Wednesday report issued by Moody’s Investors Service.
The rate of new credit card delinquencies hit 7.2% in the second quarter, up from 6.5% in the first quarter, according to the Moody’s report, which was based on household debt data published earlier this week by the New York Federal Reserve. . . .
New residential mortgage delinquencies have edged higher over the past year but remain well below pre-Covid levels. Moody’s doesn’t expect mortgage delinquencies to reach pre-pandemic levels until 2024.
The CNN story specifically mentions data from the Federal Reserve.
As luck would have it, the St Louis Fed website is my “goto” for economic data.
Their site makes information on credit card delinquencies (but not delinquencies) readily-available.
At first blush, credit card delinquencies do not look all that bad. Afterall, on Aug 21st (the site’s latest data for this) the delinquency rate for credit cards was only 2.77%. Not terrible. Kinda looks like a return to normal, and normal has been pretty good post 2008.
.
.
.
But then I remembered something one of my (decidedly left-of-center) econ professors used to say. He was fond of reminding us that "sometimes the rate-of-change provides more information than the absolute level.)
Viola’ this is a worthy news story afterall.
Below I present the rate-of-change in US credit card delinquencies
quarter-over-quarter and change from a year ago.
CNBC says the post COVID period is a “k-shaped” recovery.
This is odd.
The left has long said “the rich are getting richer and the poor are getting poorer.” and most often it is not true. Most often, when they say that, if you look at the data it turns out the truth is “Rich and poor both grew. both incomes are up, just at different rates.”
Now finally, this thing they have been claiming is true and the left is in denial.
It’s like the story of “The Boy Who Cried Wolf,” but with a sick twist in the end.
“We’re seeing in the aggregate data a major bifurcation between lower- and middle-income segments of the consumer to the broader economy and the higher-income consumers,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. . . .
There are also conflicting signals coming from major consumer companies. Target warned last month of sluggish sales, and Dollar General . . . slashed its full-year outlook.
But on the other hand, American Airlines raised its earnings guidance on May 31, citing stronger demand and cheaper fuel. And luxury apparel brand Lululemon topped estimates for earnings and sales
But it also could be a sign that the economic recovery is becoming “K-shaped,” Goodwin said. That means a situation where different income tiers of consumers diverge from one another.
. . . But we’re seeing in the aggregate data a major bifurcation between lower- and middle-income segments of the consumer to the broader economy and the higher-income consumers,” she said.
“The bifurcation is happening not only by income segment but also by age,” Goodwin continued, pointing to credit card default rates.
That article echoes earlier pieces in Bloomberg and the NY Times.
Each of those also warned that the post-COVID era (aka the Biden/Powell era) is bringing us a K-shaped economy.
NY Times
In late 2020 and early 2021, talk of a “K-shaped recovery” took root, inspired by the early pandemic economy’s split between secure remote workers — whose savings, house prices and portfolios surged — and the millions more navigating hazardous or tenuous in-person jobs or depending on a large-yet-porous unemployment aid system.
In 2023, if there’s a soft landing, it could be K-shaped, too. . .
“As we look ahead, I think it is entirely possible that the households and the people we usually worry about at the bottom of the income distribution are going to run into some kind of combination of job loss and softer wage gains, . . .” said Karen Dynan, a former chief economist at the Treasury Department and a professor at Harvard University. “And it’s going to be tough on them.”
Bloomberg
Inflation Is Bringing Back the K-Shaped Economy
The top end of the wealth scale won’t need to curb spending thanks to soaring home equity and fattened savings, while higher prices squeeze renters at the bottom.
March 14, 2022 at 7:00 AM EDT
Until now. Stagflationary trends in the housing market combined with the energy shock stemming from war in Ukraine has created a new kind of K-shaped economy. . . .
Low-income renters find themselves in the opposite situation — they spend a larger portion of their incomes on commodities, so their purchasing power is declining as food and energy costs soar. And they get no benefit from growing home equity; They’re just paying steeply higher rents. . .
For the rich, travel and dining plans are unlikely to be affected by the economic turbulence we’re experiencing. . . . But that’s not the case for lower-income renters. A 10% increase in gasoline prices has an impact of -0.9% on the income of someone in the bottom decile of earners. With gasoline prices up 30% this year as of March 9, that’s effectively a 2.7% income decline. . . .
The rich are much more tied into the Stock Market than the rest of us, so that influences the data. What I’ve noticed is how rich members of Congress get, but you never hear the left complain about that!
That is true the number of Congressmen who have gotten extremely wealthy in the stock market while in office is high, so high nobody in their right mind would say it is being done legally.
Perhaps we should start a thread about that (I have read a bunch of stories to that effect but I have not bookmarked them.)
Meanwhile the signs of a strong economy often turn out to be smoke-and-mirrors stuff. Stuff like
growth in the manufacturing sector looks positive, but turns out to be negative when you back out forced spending by the government (CHIPs ACt, road construction etc.)
Jobs market appears strong on the surface, but it turns out two-thirds of new jobs went to new migrants and more than half of new jobs are in either seasonal travel-and-leisure or government.
When we look at the signs of a “stronger economy” most often it turns put to be a stronger government using stronger measures to force people to spend money.
