RSS Feed for This PostCurrent Article

The Most Critical Economic Statistic

By Larry Doyle on May 19, 2009 at 2:15 PM in Economy, Sense on Cents (Larry Doyle blog)

Which economic statistic is the most important? Unemployment? Housing starts? Trade deficit? Inflation? Retail sales?

Well, they are all important . . . but as I review the many statistics, the economic data that I believe most significant are loan delinquencies. Now, mind you a delinquency does not mean that the loan has defaulted and been foreclosed upon. A delinquency is merely a late payment. Typically loans are classified as 30 day, 60 day, or 90 day delinquent. There is a very high correlation between delinquent loans and those that default.

Loans become delinquent for a whole host of fairly typical reasons. That said, in this economy the nature and array of reasons are growing. As a result, the ability of lenders to forecast and manage delinquencies is increasingly more challenging. Lenders will typically increase reserves as loans become more delinquent in anticipation of a natural rate of default.

Loan delinquencies will often occur even before unemployment hits or sales falter. As individuals or companies feel increasingly squeezed, the monthly loan payment becomes more difficult to make and delinquency results.

While green shoots may appear across our economic landscape, the pace of delinquencies is surging. Some economists will assert that they have forecasted it; however, the government in the Bank Stress tests were clearly too conservative in their default assumptions. Over and above that, any self-respecting analyst will tell you that banks and other lenders (insurance, smaller thrifts) have significantly under reserved against future losses.

So how are these delinquencies doing? Market Watch reported yesterday that Fed Says First Quarter Delinquency Rates Surge:

The Federal Reserve said on Monday that delinquency rates on all loans jumped to their highest level since 1991, with delinquencies on credit cards hitting the highest rate on record. In addition, the Fed said, all consumer loans hit a delinquency rate of 4.7%, also the highest rate on record, while delinquencies on residential real estate hit the highest rate on record as well. Delinquencies on commercial real estate hit 6.4%, the highest rate since 1993, the Fed said.

This data is not a green shoot nor is it anywhere close to peaking. That fact would be less meaningful if banks aggressively reserved against future losses, but almost all of them have been negligent in setting aside the necessary reserves.

Loan delinquency data is not regularly highlighted for obvious reasons. In my opinion, however, a decrease in delinquencies will precede a turn in the economy with much greater precision than any other economic statistic.

LD

  • Betty

    My son has a friend who owns a small business. The past year has been a struggle for him and he had to let a few employees go.
    Reciently an ex-employee called him to ask if he had any work. The employer had to tell hin “no” and a day later the ex-employee hung himself.

    I am sick of them lying about the unemployment numbers.

    • Diana L. C.

      What a sad story. It breaks my heart that there is such a disconnect between the way politicians live their lives and the realities of the way most Americans have to live.

      I know I and many of our friends and family are just doing our best to cover each other’s backs, so to speak–to be aware of how everyone we know is doing financially, to keep up as best we can, to have some left to help others we know, etc.

      I had it pretty easy growing into adulthood. I just wish my kids had it thhe same.

      • J.J. (The P.U.M.A.)

        Dear Diana,

        I’d like to tell you what I told my adult daughter who has a child. “We all want to provide our children with perfect lives. But, it is the hardships and sacrifices that our children witness and experience themselves that build character and strength”.

        • Tom Cat “wodiej” Jefferson Esq

          I’ll second that, well said.

        • http://noquarter foxyladi14

          watching our children struggle and suffer is as heartbreaking as when they fell off of their bike and skinned their knees as kids.
          but it is necessary..

    • tango

      This is why I’m so disgusted by Michelle Obama and her pleas to graduates to pursue jobs where money is not the primary motivator but jobs where they can give back and make a difference. All the time she feels it’s ok and in good taste to wear $500 sneakers while volunteering at the Food Bank and enjoying the services of full time makeup artists and hair stylists. I’m tired of President Obama and his lectures on how we must all sacrifice while his adminstration is throwing weekly parties in the White House and serving $100 a pound beef and AF One is off on $300,000 flights just for publicity photos.

      They are so out of touch with the real struggles of Americans it makes me angry.

      And the unemployment rate for (male) blue collar workers keeps rising no matter that the stimulus bill was supposed to bring lots of construction and related industry jobs:

      One statistic that stands out in America’s recession-stung economy is the unemployment rate for adult men: in April for the second month in a row it surged ahead of the national average to 9.4 percent versus 8.9 percent for all workers. The jobless rate for adult women was 7.1 percent.

      The reasons are clear: male-heavy sectors such as construction and manufacturing have been hard hit. But the implications may be dire for the broader economy and hamper the recovery as families that once had male breadwinners struggle.

      “In the 2001 recession, 51 percent of all job losses were for men. It was evenly split. But in this recession 80 percent of the jobs that have been lost have been men’s,” said Andrew Sum, a labor economics professor at Northeastern University who has studied this issue in detail.

      http://www.reuters.com/article/economicNews/idUSN1450507420090518?pageNumber=1&virtualBrandChannel=0

      My husband is a manager at a construction company and has dozens of workers of all ages, specialties and skill levels come by every day asking about work. It’s gotten so bad they took to posting a “no jobs available” sign on the front door of the business. And because of the glut of applicants, they have not given the majority of current hourly workers a pay raise this year since if someone quits because of it, they are easily replaceable. And people are not quitting because there is nothing else out there and the company has good reasonable cost medical insurance and other benefits.

      • Ellen D

        Those “no work” signs were everywhere in the great Depression. Scary.

  • Ellen D

    So many terrible human stories and the credit card companies have the nerve to put cheery ads on the air saying that if you have a problem they are happy to work with you. And Congress won’t do anything about the banks – this latest Credit Card bill is a joke.
    I have been responsible for a few late payments, none of which were because I didn’t have the money.

    I missed making one due on the date my daughter got married.

    Back when I used mail, one got lost in the mail.
    Once I got distracted and didn’t hit the little “confirm” button on the online payment page. I logged off thinking I had made it but I didn’t.

    Right now as I speak I am waiting on the telephone because the bank site’s system for transferring between accounts is down and the phone lines are jammed. I’ve waited half an gour now.
    Guess I’ll have to go across town into the branch to do it.

    All this stuff is being included in the default rate.

  • http://www.hillaryorbust.com Hillary or Bust

    I know someone who works in the banking industry and apparently we’re heading off a cliff with all these loans about to default.

    • oowawa

      Yes indeed, Hillary or Bust.

      A small subset of the total problem: many seniors on a fixed income who had planned on applying for a “reverse mortgage” to stay in their homes can no longer do so because their equity has diminished so much with falling house prices. Result: foreclosed homes and old folks trying to move a lifetime’s worth of belongings to an apartment or trailer somewhere.

  • oowawa

    Larry, I am in full agreement with your assessment. The hope bubble currently inflating the stock market will soon run up against the reality of loan delinquencies and subsequent defaults. Once this avalanche commences, there is no way pundits will be able to spin it as “better than expected” nor will “The Street” be able to “shrug it off.”

    Here is a small sector of the coming mortgage default problem: many seniors held out hope for a “reverse mortgage” to help them out with their mortgage payments in the face of their declining incomes. Now that home prices have declined so much and they have lost their equity, that is in most cases no longer an option. A crisis is looming for many seniors, and they may lose their homes.

  • oowawa

    Oh well, the Almighty Spam Filter, who I suspect is on the payroll of Goldman Sachs, cast 2 of my bearish comments into the Lake of Fire, so I will run a nice hopey comment and see if it gets through:

    O happy day! All bad news will be “better than expected!” If something truly catastrophic occurs, “The Street” will be able to “Shrug it off!” May the stock market continue to inflate like a happy-face balloon and float up up and away, over the rainbow, to financial Never-Never Land!

    • http://www.sonicninjakitty.wordpress.com Sonic Ninja Kitty

      LOL–Spammy is an obot.

  • blogforce one

    Commercial loan defaults may be the straw that breals the camel’s back. current estimates are that $200Bn of commercial debt is “bad” When the commercial market tanks, all bets are off.

  • Tom Cat “wodiej” Jefferson Esq

    Something is awry, my comments have been frequently going into spam hell also. They are working on it trying to figure out what is going on.

    I imagine there are alot of delinquent loans w people being out of work. I have to wonder how many of these loan delinquencies are due to people overextending themselves and banks being lax in lending. How many people had savings, 401ks they could use or just cut back on spending before it got really bad? How many still smoke, buy things like pop, beer, go out to eat etc.? I mean, this recession didn’t hit overnight. Alot of people don’t worry about things until it hits them and then it’s too late.

    As for the credit card bill in Congress, they may as well wipe their ass on that. It’s worthless. The best thing to do, is pay off your credit cards and cut them up and throw them in the trash.

    • Ellen D

      Don’t know any smokers. I guess some drink sodas. restaurants are empty. I don’t think people are carrying on as normal.
      Using 401Ks is the last resort because the tax is going to kill you.

    • http://noquarter foxyladi14

      get back to the basics cash is king..

    • oowawa

      Something is awry, my comments have been frequently going into spam hell also. They are working on it trying to figure out what is going on.

      Well, wodiej, I am going to try a new tactic. I long ago concluded that the ASM (Almighty Spam Filter) had achieved self awareness akin to HAL in 2001 (or, as Wolfram Alfa certainly will in the near future), and so from now on I am going to preface every comment with a brief supplicant prayer:

      “O Almighty Spam Filter, I know that Thou art great, and I, thy humble servant oowawa, am like unto a meaningless insect. Please vouchsafe that this humble communication be granted safe passage through the vast ether of cyberspace and reach safely its intended destination. Amen.

      Oh yes, and may none of my loans fall into delinquency and default. Amen, again.”

      • http://www.hillaryorbust.com Hillary or Bust

        Love this!

      • Katmoon

        Exactamundo! Hiya, back from graduation/vacation. Checking in; will be back tomorrow, Ferd says “Hi”, too, and a special howdy for Pelosi..”Bite Me”.

        • oowawa

          Hiya Katmoon, you know, NQ is just not the same without you and Ferd around. Welcome back!

  • http://www.hillaryorbust.com Hillary or Bust

    BTW, completely off-topic: There is an election today in California. I got a flyer from a senate candidate who put on his flyer that he was endorsed by “BARACK OBAMA’S DEMOCRATIC PARTY.”

    Not just the “democratic party” but “BARACK OBAMA’S DEMOCRATIC PARTY.”

    Why aren’t people more creeped out about this?

    Needless to say, I am voting against this guy.

  • jangles

    All the bets are that CA’s election props will deep six in today’s election even tho’ the visible organized resistance to it appears to be pretty small ad the stakes are incredibly high.

    NOTE: Unemployment among government workers is at around 2%. Non-government unemployment at 9.1% and most say that figure is drastically understated. Also government workers now make a lifetime avg. of 46% more in pay and benefits than non-govt workers. Isn’t that a zero sum game somewhere out there in the long run?

    • Peggy Sue

      And added to this mess, I understand the most egregious ARMs are getting ready to reset at the end of this year and throughout 2010-2011. With unemployment on the rise this could get very, very nasty. Then throw in commercial real estate nosedives.

      But the Dems are still throwing money around like it’s Christmas all year long.

      Green shoots? They’re handing us weeds and calling them roses and recovery.

      Scary times are a-coming.

      Thanks for the update, Larry.

    • Ellen D

      Prop 1A is the biggest, most tangled mess I’ve ever seen. I spent a whole day studying it. There are 3 constitutional amendments buried in it. You read one part and say “I agree with that.” Then you read the next and say”I don’t agree with that”. The amendments are in legalese.

      The end result will be that people will get fed up with it and vote agaist it despite any good parts.

  • Patience

    Boy, this loan default info isn’t a good sign Larry. You’ve become a consistent deliverer of bad news! I appreciate your candor and honesty though — I’d rather have a firm grip on reality than buy into the cheap talk and lip service coming from this administration and its enablers in the media.

    I have a sicker feeling about the economy than I did last fall. It seems nothing is truly turning around, just a slight drop in recent new jobless claims that will likely be revised. Any business articles I’ve read have said the bank stress tests were basically a whitewash. I’m growing more and more wary of company reports — I fear a lot of businesses may be fudging numbers just to keep afloat a while longer.

    Has anyone who isn’t a political patron of the POTUS gotten much benefit from the so-called stimulus yet?

    This recession is lasting a very long time, with no real end in sight. I’m starting to worry that we haven’t even come close to seeing the worst.

    • oowawa

      This recession is lasting a very long time, with no real end in sight.

      It’s a good thing your name is “Patience!” I’m afraid that before it’s all over and there is some genuine “hope” instead of transitory euphoria induced by phony “hopium,” we are all going to need another biblical virtue: longsuffering.

  • Ginger

    Larry, Did I read it here that there are banks that are now walking away from foreclosed homes?

  • oldmediatype

    In good times, I found that the credit card companies willing to lower rates when I called. Not now. With only one exception, they wouldn’t budge when I called. I wasn’t late paying but anticipating a tough year, I asked them to cut the rates (some as high as 28%) on several cards I use for business. The answer was no. So, then I went to a credit counseling service which got all of them to lower the rates by more than half!

    American Express did even better, lowering the rate to zero for six months, then charging a 9% rate after that, amortizing the amount due over three years.

    I’m not surprised by the delinquency numbers. The “green shoots” are a statistical mirage. The fact is a lot of people who run small business are undercapitalized and use credit cards to stay afloat. I was a business reporter during the recession of the early 80s. My hunch is given the easy credit of the
    past few years, there are a lot more small businesses run on personal credit cards now compared to then. The impact of those delinquencies will not only affect unemployment in the coming months but will likely have a more lasting effect on small businesses ability to obtain the credit they need to participate in a rebound. In the future we can be fairly certain that credit card won’t be as loose with granting credit as they have been in the past. Translation: higher unemployment could persist longer than now expected.

  • http://www.Daily-Protest.com Alessandro Machi

    The trillion dollars in credit card debt that has had it’s own interest rate increased to 30 percent is suctioning off a huge portion of local economy spending money.

    This in turn causes local governments to raise taxes as their revenue drops. Chase bank is about to loan money to a huge transit system (I think it is in
    Austin Texas?) that has run out of money.

    Ironic how the credit card companies suction off spending money, then ride in to save the day when the people they are robbing curtail their traveling and purchases.

    http://www.Daily-Protest.com

  • http://www.medicalnegligenceireland.com Medical Negligence Ireland

    Nice read….well written…..thank for share a helpful information… During  to the nature of the cases they deal with, you will find that  a well experienced personal injury solicitors are easy to talk with, sympathetic of your situation and considerate of the injuries that you have suffered when providing  a good advice.

  • http://www.medicalnegligenceireland.com Medical Negligence Ireland

    Nice read….well written…..thank for share a helpful information… During  to the nature of the cases they deal with, you will find that  a well experienced personal injury solicitors are easy to talk with, sympathetic of your situation and considerate of the injuries that you have suffered when providing  a good advice.