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Is the recession here? U.S. delinquency rate surges to highest level in 14 years

Is the recession here? U.S. delinquency rate surges to highest level in 14 years

Several metrics are sounding the alarm for the United States economy, hitting levels reminiscent of past recessions.

Particularly, according to data shared by The Kobeissi Letter in an X post on May 18, auto loan serious delinquency rates surged to 2.8% in the first quarter of 2024. The platform noted that this level is the highest since 2010 in the aftermath of the financial crisis.

“Auto loan serious delinquency rates surged to 2.8% in Q1 2024, the highest level since 2010. US households are missing loan payments as if a recession is here,” the platform noted.

US serious delinquency rate. Source: The Kobeissi Letter

At the same time, the data noted that this rise in 90+ day delinquencies is climbing at a pace last observed during the 2008 financial crisis.

The data also revealed that household auto loans jumped by $9 billion in Q1, reaching an all-time high of $1.62 trillion. This massive debt burden means that $45 billion of consumers’ auto loans are on the brink of default.

Adding to the financial strain, car insurance inflation jumped to 22.6% in April, marking the largest one-year increase since the 1970s.

Troubling economic picture 

Overall, the data on delinquencies highlight the current financial landscape, which showcases a troubling picture. The significant surge in auto loan delinquencies and car insurance costs signals that many Americans are struggling to keep up with their financial obligations. This strain is amplified by persistent inflation, which continues to erode purchasing power.

Notably, throughout 2022, inflation soared to levels unseen since the late 1970s, exacerbated by global supply chain issues and pandemic-related shortages. Although inflation eased somewhat in 2023, it has remained stubbornly high in 2024, partly derailing the Federal Reserve’s interest rate cuts.

It’s worth noting that since the pandemic, several economic indicators have been flashing signs of a recession, with attention focused on the Federal Reserve regarding its next monetary policy.

Analysts’s warning 

In this context, several analysts have been cautioning that a recession might be on the horizon. For instance, Paul Dietrich, a Wall Street analyst who accurately predicted the 2008 recession, has been warning for months about a potential downturn.

Dietrich has noted the emergence of several red flags, such as unexpectedly high inflation throughout the first quarter and increased market volatility.

This comes at a time when the stock market is witnessing record-breaking numbers, with major indices such as the S&P 500 and the Dow Jones hitting new highs. Meanwhile, commodities like gold, which typically thrive in inflationary times, have also recorded a resurgence in recent weeks.

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