Auto Loan Delinquencies Signal Broad Consumer Stress Amidst Rising Costs

Key Quotes

"By and large, American households are in a healthy economic position. Yes, unemployment has been rising, but it's still at fairly low levels. Consumer spending has held up well despite terrible sentiment. And many households are sitting on huge stock market gains and have a big home equity cushion."

The hosts of Odd Lots introduce the paradox of the American consumer, noting that despite negative sentiment and rising unemployment, aggregate economic indicators like consumer spending, stock market gains, and home equity suggest a generally healthy household financial position. This sets the stage for exploring the underlying issues that contradict this broad picture.

"Most notably, auto loan delinquencies have been surging to their highest level in history. It's the same with student loans, where delinquencies are far higher than normal."

The hosts highlight specific areas of concern that challenge the overall positive economic outlook for American households. They point to auto loan and student loan delinquencies as significant indicators of stress, suggesting that these rising default rates are at historic highs and warrant further investigation.

"So what's going on? On this episode, we speak with Rikard Bandebo, the chief economist at VantageScore, which offers a consumer credit score that's different from the traditional FICO measures. He explains how surging prices, rising interests, and -- crucially -- rising insurance costs have created an auto squeeze."

To address the perplexing economic situation, the podcast introduces Rikard Bandebo, an economist from VantageScore, who will provide expert analysis. Bandebo is expected to explain the specific factors, such as inflation, interest rates, and insurance costs, that are contributing to the financial strain on consumers, particularly in the auto loan market.

"The general view is that the American consumer or the American household has a very big cushion. There is a lot of home equity built up there that is not a thin and layer obviously anyone with money and any sort of investment account has done phenomenally well."

Joe Weisenthal and Tracy Alloway discuss the prevailing narrative about the American consumer's financial health. They acknowledge that many households appear to have substantial financial buffers, including significant home equity and investment gains, which would typically indicate resilience.

"We're according to as of December 12th yesterday I think the s&p 500 hit yet a new all time high so if you have any sort of home equity built up if you have any sort of investment you are doing very well on the other hand of course people are stretched from years of inflation we know that hiring has slowed down we know that you know we see these headlines delinquencies for cars have like shot up but I've been seeing these headlines for years I don't totally know what they mean or how apples to apples they are with the past I just don't know I just I'm very confused."

Joe Weisenthal expresses his confusion about the current economic climate, contrasting the positive performance of the stock market with the persistent headlines about rising delinquencies. He questions the comparability of current delinquency data to past periods, indicating a lack of clear understanding of the consumer's true financial state.

"The thing that i haven't been able to get my head around is how much of that year over year increase in spending on the holidays is driven by the prices of the goods going up versus people buying things that would have traditionally been more expensive or splurging more that for me isn't obvious and i think that again when trying to understand how the economy is going it's so important if you're looking at from a spending perspective to actually look at the different merchants right how's mcdonald's doing what are the trends there what's happening in high end how is lvmh doing versus walmart etcetera because again you know even though i said that you know there's a silver lining in that high income um consumers are seeing declines middle income have come down but they're still increasing and low income are seeing persistently higher on 8 year over year increases in their delinquency rates and so we're probably next year going to see more households struggling to make ends meet than we saw this year"

The speaker discusses the difficulty in discerning whether increased holiday spending is due to inflation or genuine consumer splurging. They emphasize the importance of analyzing spending trends across different types of merchants, from fast food to luxury goods, to gain a clearer picture of the economy, especially as lower-income households continue to face rising delinquency rates.