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Five Things You Need to Know: America Eats the Speculators
Circling back to the Capital One (COF) presentation at the Lehman Brothers Financial Services Conference for a moment, we noticed an interesting slide from the materials COF presented showing the relationship between credit card delinquencies and unemployment. Now, intuitively, we would think that rising unemployment would certainly restrain credit card payments, worsening delinquencies. But, according to Capital One, we would be wrong.
There's a very interesting chart that's worth a look. It does not bode well for future unemployment. It seems deliquencies come before unemployment, not the other way around. I certainly would not have guessed that.
ICE: Mortgage Delinquency Rate Increased Year-over-year in October
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From ICE: ICE First Look at Mortgage Performance: Serious delinquencies hit
17-month high while foreclosure activity remains historically muted
• At 3.45% ...
3 hours ago
6 comments:
I have a friend, recently unemployed. She told me a year ago that she expected to lose her job at some point, due to shakeups at the company. She was right and the jobs she is looking at pay significantly less. I would expect that to make delinquencies even worse.
Teri,
It seems to be a feedback loop. Generally, the deliquencies trigger unemployment (as seen in the chart). However, unemployment clearly triggers deliquencies too.
It's a lose-lose situation.
When my girlfriend got laid off last fall she saw it coming. Her coworkers thought she was being paranoid. One even bought a new house. Not good.
That chart is astonishing. So astonishing, I wonder if it's accurate.
- jus me
Uh, did central banks used to jack up interest rates to "cool off" the economy, thereby increasing unemployment with a lag?
Might it be that the higher interest rates cause delinquencies before unemployment? (Just guessing, I don't know what the interest rates were.)
- jus me
jus me,
That was my reaction. It makes me think I'm not bearish enough.
In some ways it makes sense. When you live paycheck to paycheck the slightest things can push you into delinquency. Heating oil and gasoline are well past the slightest things point I believe.
Then, once the deliquencies appear, things really start to go to you know what in a handbasket. However, until that point why would employers think there's a serious problem and decide to cut back?
jus me,
Might it be that the higher interest rates cause delinquencies before unemployment?
It is hard to say. I would think that the rising price of goods was enough of a trigger on its own to cause pain. Any interest rate hikes were just icing on the cake.
I think we're seeing that right now. Deliquencies are rising even as interest rates have been falling.
Fed: Delinquency Rates Rose Sharply in Q1
http://calculatedrisk.blogspot.com/2008/05/fed-delinquency-rates-rose-sharply-in.html
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