The Economic Roller Coaster: Buckle Up for a Bumpy Ride

Any person employed in the asset receivables management (ARM) industry would agree that we obsess over the state of our economy and do our level best to determine the direction that it is headed. The data is telling.

With interest rate hikes and rising inflation, many Americans are finding it increasingly difficult to afford their monthly car payments, Bloomberg reported. The percentage of subprime auto borrowers at least 60 days past due on their loans reached 6.11% in September, the highest level since 1994, citing data from Fitch Ratings.

According to various sources, credit card delinquency rates now hover at 2.6% and are expected to rise to levels not seen since 2010 by the end of 2023. Credit card delinquency rates refer to the percentage of credit card balances that are 30 to 90 days past due. TransUnion, a credit bureau, forecasts that serious credit card delinquencies (90+ days past due) will increase from 2.1% at the end of 2022 to 2.6% at the end of 2023.

Unsecured personal loan delinquency rates are also expected to increase from 4.10% to 4.30% by the end of this calendar year.

A person does not need to be an economist to understand these metrics.

Raymond James chief investment officer, Larry Adam, notes that from the resumption of student loan payments to elevated borrowing costs, there are many risks that everyday consumers are forced to navigate. Tailwinds that drove strong consumer spending since the pandemic are ending and excess savings have been nearly depleted.

Billionaire investor Leon Cooperman warns of sticky inflation and looming recession. He notes the pace of wage increases — a key driver of price growth — is unlikely to slow markedly given the tight US labor market. Inflation has cooled from a 40-year high of over 9% last summer to below 4% in recent months, but that's still almost double the Fed's target rate of 2% a year.

U.S. Bureau of Labor Statistics’ Employment Projections program develops information about the labor market for the nation as a whole for 10 years in the future. According to their projections, total employment is projected to increase almost 4.7 million from 2022 to 2032, driven primarily by growth in the health care and social assistance sector.

However, labor shortages are predicted to persist for years due to demographic factors. According to a recent article by PRB, demographic factors such as aging, death, and migration patterns contribute to labor force dynamics. The average American is growing older every year, and the share of working-age people in the U.S. population has shrunk. Aging baby boomers are having an outsized impact on the U.S. age structure, and birth rates have dropped, consequently, we are entering a prolonged phase where there are fewer young Americans to replace those retiring. Also, death rates have risen for both young and older adults, driven by drug overdoses, alcohol, suicide, diabetes, and obesity-related health conditions. Lastly, policies matter. The U.S. is notable among its peer countries for lack of family-friendly policies, which limits full labor force participation.

None of the above takes into account the impact of domestic and global political instability on the US economy. According to an article in Bloomberg, prolonged political turmoil could damage investors’ faith in the safest asset in the world, which is US government bonds. If political instability causes Treasury bonds to become riskier assets, it could undermine the entire banking system and by extension, American companies.

There have been 9 recessions in my lifetime. The longest and most calamitous being from 2007 to 2009. While economists believe that we are not currently in a recession, the outlook is not rosy.