There is a seemingly unlimited number of disconnects in financial markets these days, not the least of which is the shocking divergence in recent years between the ever plunging unemployment rate in the United States and stubbornly rising delinquencies on consumer debt. In fact, according to a note published earlier today by UBS strategist Matthew Mish, that divergence continues to soar to all time highs with each passing month…but why?
As it turns out, the answer to the enigma above may just have something to do with the fact that, despite declining unemployment levels, wage growth remains completely non-existent at a time when consumer leverage, particularly in the form of student loans and auto debt extended to the most financially vulnerable cross sections of the American public, is soaring. Let’s explore the data from UBS…
Per the charts below, when you break out rising consumer delinquencies into their individual buckets the catalyst for the trend above suddenly becomes more clear. While delinquency rates on mortgages, HELOCs and credit cards are improving, or at least not deteriorating rapidly, delinquency rates on student loans and auto loans are a completely different story.
90-day delinquency rates on consumer loans are up 20bp to 7.61% Y/Y, led by deterioration in auto loans.Trends in recent loan vintages suggest a negative outlook on balance, but incremental deterioration is shifting from autos to credit cards and student loans. This is worrying as it indicates broader weakness in non-prime consumers.
For one, auto and credit card loan default…Read More