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  • Bob Brooks

What Are Car Loans Signaling About the Economy?

Could a troubled car loan be signaling a red flag when it comes to the economy?  

Student loan balances also ticked higher, rising $15 billion to $1.46 trillion in the fourth quarter, and serious delinquency rates remained elevated. The report found more than a tenth of student debt was seriously delinquent in the fourth quarter, though the actual rate is likely higher due to situations involving deferment and forbearance.

Credit card balances climbed by $26 billion. The number of credit inquiries within the past six months, meanwhile, declined to the lowest level on record. That could signal trouble for demand and consumer spending, which accounts for more than two-thirds of economic activity.

Are car loans signaling danger ahead for the economy?

Debt, debt, and more debt. 

It is everywhere. The last debt statistics show debt in the fourth quarter of 2018 rose to an all-time high. To give that perspective, that all time record is 7% higher than the level of debt that was reached before the financial crisis in 2008.  

If you dive deeper into the numbers, it is a little more troubling. Let's start with credit cards.  Credit card balances climbed by 26 billion in the 4th quarter of 2018. Now, keep in mind that consumers are accumulating new debt at the highest average interest rates on record.  That begs the question. Are consumers using debt for pleasure or necessity? No one borrows at 20% plus interest rates unless they have to do so.

Then there is this little statistic. Credit inquiries for new credit cards sunk to the lowest level on record during the 4th quarter. Either credit card companies are starting pull back on new loans or the consumer is so maxed out they aren't trying. The bottom line is that the spigot of new credit might be coming to an end.  

Student loans are even troubling. The latest reports show that a 10th of student loan debt is in serious trouble.  

Then there are car loans. A record number of consumers, over 7 million, are three or more payments behind on their car loans. Why is that significant? Your car could be your most important asset to protect considering it is your means of getting to and from work.

Riddle me this - if the economy and jobs market is so strong, why are we seeing these numbers? Optics, maybe nothing more than optics.  

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