Data released this week by the Federal Reserve Board of New York is sending up red flags that consumers’ financial conditioning may be weakening, and signs of a recession may be on the horizon.
Economists are pointing to a record number of individuals who are behind on their auto loans as signs that consumers are having problems paying their bills. More than 7 million individuals are at least three months behind on their car payments, according to data released earlier this week by the New York Fed, which is a record number. Individuals tend to make sure to pay their car loan above all other bills because they need their vehicles to get back and forth to work, and in a pinch, can live in their car if they lose their home or apartment.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector,” the New York Fed wrote in a blog post dissecting the data.
The 7 million who are behind on their payments now is 1 million more than the amount who were at least three payments behind back in 2010, when the unemployment was at 10%. Younger borrowers are especially having a difficult time paying their auto loans, according to the data.
Another sign that the economy might be slowing down is the number of credit inquiries made by consumers, which include loan applications and is viewed as an indicator of consumer credit demand, declined to the “lowest level seen in the history of the data,” according to the New York Fed.
Overall, 4.7% of all outstanding consumer debt, including mortgages, student loans, auto loans, and credit cards, was delinquent at the end of the fourth quarter of 2018, which is the same rate from the third quarter.
The number of individuals with a debt that had been placed with a third-party collection agency continued to trend downward in the fourth quarter, as did the average amount of the debt that was in collection.