As the fog clears it has become clear the Trump Shutdown messed up consumer economic statistics, far more than projected, producing skewed economic data. Lenders were particularly rattled when the latest figures revealed an uptick in auto loan defaults. First mortgage defaults also edged up, raising concerns among bankers. Credit card delinquency also moved upward but not as concerning to issuers.
Further skewing the consumer statistics, the government agencies charged with gathering, compiling and analyzing the data were shut down.
Nonetheless, there still remains a mist around the outlook for 2019. While Main Street is benefiting from a strong jobs market, low inflation plus borrowing rates in a holding pattern, there is still uncertainty surrounding the impact of higher personal taxes, lower tax refunds, and mounting student debt.
On Wall Street, the impact of trade tariffs, rocky corporate earnings, coupled with potentially higher interest rates are major areas of concern for investors. Layered on top is the situation in Venezuela as well as Europe and Iran tensions notes analyst RAM Research.
The S&P/Experian Consumer Credit Default Indices show the composite rate rose one basis point from last month to 0.90%. The bank card default rate rose eight basis points to 3.42%. The auto loan default rate fell four basis points to 0.99%. The first mortgage default rate was two basis points higher at 0.69%.
Following a month where default rates for all loan types increased, the January 2019 S&P/Experian data shows default rates little changed from the prior month. The longer term trend shows that default rates have mostly stabilized. The composite rate has fluctuated within a narrow band – the last time this rate was more than 10 basis points off of the current level was nearly four years ago in March 2015.
The University of Michigan’s Consumer Sentiment Index notes the February gains reflect the end of the partial government shutdown as well as a more fundamental shift in consumer expectations due to the Fed’s pause in raising interest rates. Although the majority of consumers expected some additional rate hikes during the year ahead, that proportion has shrunk to the smallest level in the past two years. Perhaps more importantly, consumers’ long term inflation expectations fell to the lowest level recorded in the past half century.
The University of Michigan’s figures for February, showed a significant jump between January and February of this year, but compared to one-year is slowly eroding.
Consumer Sentiment rose from 91.2 in January to 95.5 for February, or a +4.7% gain. Compared to February 2018, Sentiment is down -4.2%. Consumer Current Economic Conditions increased from 108.8 in January to 110.0 for February, or a +1.1% gain. Compared to February 2018, Current Conditions is down -4.3%. Consumer Expectations rose from 79.9 in January to 86.2 for February, or a +7.9% gain. Compared to February 2018, Expectations is down -4.2%.
The NFIB Small Business Optimism Index slipped 3.2 points in January, as owners continued hiring and investing, but expressed rising concern about future economic growth. The 101.2 reading, the lowest since the weeks leading up to the 2016 elections, remains well above the historical average of 98, but indicates uncertainty among small business owners due to the 35-day government shutdown and financial market instability. The NFIB Uncertainty Index rose seven points to 86, the fifth highest reading in the survey’s 45-year history.
The NFIB notes January was an unusual month, the “Trump Government Shutdown,” uncertainty about federal budgets, and plenty of financial market commentators talking “slowdown” in Europe, China, and in the U.S. For small businesses, hiring and hiring plans signaled a strong economy, job openings were strong, inconsistent with rising weakness in the economy. Inventory spending and capital spending were solid. Business owners did express concerns about future sales growth, some weakness in business conditions later in the year and some deterioration in conditions that would be supportive of business expansion. The economy is at “full employment” and it’s hard to grow fast from that position, but solid growth would certainly be welcome.