1/8/2025
Debt, Defaults and Delinquencies (Oh My!)
By Elliott Wave International
It's a double whammy: U.S. credit card defaults jump to the highest level since 2010 as personal savings dry up. Expectations for the months ahead are even more glum. Elliott Wave International lay it out in their November Financial Forecast:
The latest New York Fed Consumer Loan Survey reveals that consumers' expectations for delinquencies rose to 14.22% in September, as shown on the chart below. Over the past seven years, the only higher readings came in March and April 2020 in the midst of the last U.S. recession:
The survey goes back only to 2013, but the history of consumer loan delinquencies suggests that the next debt crisis will be way more disruptive than those of the 2000s. Ahead of the relatively mild recession that began in the first quarter of 2001, for instance, delinquency rates on consumer loans barely budged, rising less than 1% from March 2000 to the start of the recession in March 2001, according to the Fed. By the end of that recession, the consumer loan delinquency rate was actually lower than it was at the beginning of the economic contraction. As its moniker suggests, the Great Recession of 2007-2009 was rockier. Ahead of the recession that began in December 2007, consumer loan delinquencies rose for two full years to 2.64%. At the end of the recession in June 2009, the delinquency rate was at a modern-day high of 4.85%. The current setup suggests a bigger rise in delinquencies. As of mid-2024, the rate has been rising steadily for 3 years and 9 months, from 1.52% in the third quarter of 2021, which was the lowest level in the Fed's half century of data. Currently at 2.74%, consumer loan delinquencies are up 79%. "Consumers Have a Debt Problem," says a headline from The Wall Street Journal on September 16. The subhead adds that they are therefore "leaning on credit cards as other sources of credit have dried up." This trend is untenable as the latest Forbes survey places the average credit card interest rate at 28.7%.
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This article was syndicated by Elliott Wave International and was originally published under the headline Debt, Defaults and Delinquencies (Oh My!). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
