Most economists have accounted for at least a mild recession in their forecast for 2023. This is despite the resilience shown by the economy so far even in the wake of a 450 basis points hike in the fed funds rate in a span of a little less than a year.
Recession Talks Premature: Total balance by delinquency status has been on a downward trend, suggesting consumer balance sheets are not as worse as feared, said Ryan Detrick, chief market strategist at Carson Group said. Consumers are becoming less and less delinquent on balances, he said. Delinquency suggests a borrower is behind on payments and being delinquent for a certain period of time would classify the borrower as having defaulted.
A graphic shared by the analyst showed that the 90+ days delinquency rate declined for all loan types. The 90-day delinquency rate is a measure of serious delinquency and captures borrowers who have missed three or more payments.
The delinquency rate for student loans has seen a sharp drop, while the mortgage delinquency and home-equity revolving loan delinquency rates have also continued to fall. All three were approaching 0%, meaning only that proportion of the aggregate of a particular loan type is delinquent.
Detrick said, “This runs counter to the "the consumer is in trouble" mantra we keep hearing about all the time.”
Consumers are becoming less and less delinquent on balances.
— Ryan Detrick, CMT (@RyanDetrick) February 19, 2023
This runs counter to the "the consumer is in trouble" mantra we keep hearing about all the time.
If the consumer is 70% of GDP, this is another clue a recession isn't the likely scenario in 2023. @NewYorkFed data pic.twitter.com/np71Y6PJdM
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Why It’s Important: Consumer spending accounts for about 68% or roughly two-thirds of the U.S. GDP. The delinquency data shows that consumer health isn’t failing, which is an encouraging sign.
The Carson Group analyst said this is another clue a recession isn't the likely scenario in 2023.
Lower delinquency rates also bode well for the nation’s banking system, as it would translate to lower non-performing assets for banks. The banks could therefore set aside a smaller amount as loan loss provisions, which in turn would boost their profitability.
Confounding the picture is another piece of data from the New York Fed’s U.S. The regional Fed’s recession probability index, based on the spread between the 10-year bond yield and 3-month bill rate, has spiked at the highest level in more than 40 years.
Benzinga’s Take: Despite the aggressive rate hikes, the economy has so far chugged along fairly well. The job market is holding up and consumer spending has also remained fairly strong. Those in the recession camp base their pessimism on the view that monetary policy acts with a lag. A measured approach from the Fed, now that inflation has dropped off its peak, could prove healthy for the economy.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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