The long anticipated recession might still be waiting in the wings.

While consumer spending and employment numbers remain strong, loan delinquency rates are rising.

Note the below chart, which includes the S&P 500 as an economic reference point.  Extreme stock market distress is accompanied by a rise in at least two loan delinquency categories. 

During the DotCom bubble, credit card delinquencies skyrocketed along with higher than trend business loan delinquencies.  While the Great Recession was characterized by high levels of all loan delinquencies, especially commercial real estate and business loans. 

Following the Great Recession, Quantitative Easing established the Era of Easy Money which created a zombie economy where weak companies never die- and a corresponding prolonged hiatus of delinquencies on business and commercial real estate loans.  That era is coming to an end.

Interestingly, credit card delinquencies were rapidly rising prior to the pandemic, then rapidly collapsed with government stimulus checks, and are now ABOVE pre-pandemic highs.  Oddly, this is at a time when unemployment is still at historic lows.  If unemployment rises as expected, delinquencies should surge. 

To kick start the recession, credit card delinquencies just need to be accompanied by poor performing commercial real estate or business loans.  Both of which are likely to occur if the Fed doesn’t cut interest rates.  And rates won’t fall if inflation remains persistent.  (Have you noticed gas and food prices are rising again?)

Additionally, leading economic indicators have been declining for 16 consecutive months…so I still think a recession is well within the realm of possibilities.  I’m remaining primarily invested in money market funds which are paying yields in the 5.06%-5.20% range and are not subject to market downturns.  

Digression- lately I’ve received a number of inquiries asking if my firm works with clients outside of our home state of Utah.  ABSOLUTELY!  We serve clients in 36 states.  Please contact me if you’d like more information.

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