Stress Cracks Forming in the Lower End of the Economic Data

Economists are signalling concern over some shock results in the economic data. Most recently, nominal highs have been reached in car loan delinquency numbers.

https://businessinsider.com/auto-loan-delinquency-number-record-new-york-fed-2019-2

Fed economists said this is "surprising" considering a strengthening labor market and economy.

People often prioritize car loans, as it's their way of getting to work and earning a paycheck, reported the Washington Post's Heather Long. The fact that a record number of Americans aren't making those payments is "usually a sign of significant duress among low-income and working-class Americans," Long wrote.

In addition to those numbers, it's been reported that the number of people with more credit cards debt than savings continues to grow, now reaching 29 percent.

https://www.marketwatch.com/amp/story/guid/AF04977A-2EFD-11E9-BF95-FE110443B462

It found that 29% of Americans have more credit-card debt than they do emergency savings. And the problem is getting worse.

In 2018, 21% said they had more credit-card debt than emergency savings. And in 2015, 22% said they had more credit-card debt.

Hourly pay is rising, now climbing at a 3% rate, after years of growing at just 2% or even smaller. But the cost of living is also going up. When adjusted for that, “real” wages actually have declined 1.3% since the end of 2017, according to a report from the salary comparison site PayScale.

Do you think this is worthy of concern?

"Do you think this is worthy of concern?"

Yes, of course. You legitimately can't fight math. Eventually this is going to cause pain for people throughout the country.

Ignoring that people might experience things that significantly hinder their income, people need to stop spending so much damn money on things they don't need.

Buy used. Put money into your savings every month. If you can't do this, you're probably spending too much money.

@Chutebox: Is the core issue that people are increasing their consumption out of line with cost growth?

People spending more money than they should on things not "needed." I'm not talking about groceries or necesities. I'm talking about designer clothing (shop at Ross!), new cars or expensive cars instead of cheaper/used, etc.

From my perspective at least.

My brother in law is a good example. He and his wife make a good amount of money, but in the span of two years they bought a motor home, boat, and two cars.

@Chutebox: These are systemic changes, no? Usually economists and sociologists look at rising trend lines and determine that something systemic is amiss (such as a cultural change or stagnant/falling wages).

Please explain what you mean by systemic changes.

Just going to say this now, I'm not fronting lol, I'm not the most knowledgable about this (but I like talking about it).

Average cost of a new car is over $35K. Average US wage is less than $45K. Average cost of a used car is over $20K. This isn’t even accounting for other needs. That‘s not a lot of room to budget out of that scenario.

You're kind of prooving my point there. I live in Cali and I can find plenty of cars for much less than 35k.

https://www.carmax.com/cars?price=20000

over 2k for 20k or less. It's people buying what they want not what is smart to buy.

Would have been nice if the middle class got all the tax cuts instead of those at the top.

@Chutebox: Systemic means "affecting a system" or "system wide". It entails looking at demographics or circumstances affecting demographics rather than individuals.

@tjandmia: Middle class.here and I'm getting 3 to 4k more on top of little extra cash monthly

I got an extra bonus due to the corporate tax cuts. I keep more on my paycheck, and my deductions have always been minimal.

Some people in blue states may get screwed on SALT deductions, but people will eventually stop blaming Trump for that, because it's not his fault places like California and Massachusetts have high tax rates.

No it’s the opposite of proving your point though. if I have a family which relies on a vehicle to get to work, grocery shopping, etc. I’m likely looking for a car that has enough space and minimum maintenance and costs. The Times reported your average car is scrap at 106k miles which is when the cost to maintain exceeds the cost to buy and typic because that’s when warranties run out and families are on the hook for the costs of engines and transmissions etc. So yes there are plenty of cars under 20k but when you have requirements of a minivan or AWD due to weather and rural areas with snow, and something with less than 75k on it youre suddenly looking at used 20k vehicle. Yes there are people who spend outside their means but considering the amount of safe guards you have to go through to get a car loan, the fact is cars and much of the cost of living is simply to high. Not everyone is car expect when it comes to buying a car, nor should they have to be to get a reasonably priced and reliable vehicle. Simplifying massive economic defaults on loans down to people picking pretty cars ignores the realities of a broken system.

The middle class is dying, slowly but surely. And not painfully enough to provide the reality check we need.

You have no way of knowing that. Had you read the earlier posts you would know car loans are a priority. That hasn't changed. That means the money isn't there anymore for priorities. Not unnecessary purchases. When real wages are lower........the money isn't there.

this is crazy to me. what % of income does the typical car buyer spend on a new car?

@LJS9502_basic: Ok. I'm saying that if you're spending money on a car loan that other necessities become unavailable, then you're spending too much.

I'm not taking into consideration people who experience loss of pay, that's obviously different.

"The fact that a record number of Americans aren't making those payments is "usually a sign of significant duress among low-income and working-class Americans," Long wrote."

You mean low-income workers are under economic stress? No, can't be! This is like the biggest no shit, Sherlock statement ever. People have been saying since forever that the cost of living is too high, wages aren't keeping up, too many people are struggling to pay for necessities, and conservatives have just responded with "well, just work harder, you're the problem not us." Well, here's literal data saying that full time workers can't keep up with the cost of living. If you don't do anything to address income inequality and stagnant lower class wage growth then you're going to get people defaulting on loans. If you don't want to do anything to address those problems that's fine, but don't complain when that inaction leads to entirely predictable consequences.

Okay, so your brother, who definitely does not seem lower class, spends money on things he doesn't need, ergo everyone in the lower class spends money on things they don't need? File under: why I categorically disregard conservatives' opinions. Seriously, your opinion is literal dogshit.

1. I couldn't give a shit about what you think about me or my opinion.

2. You need to look up what the word literal means. You seem confused.

3. He's an example of someone going way beyond what is needed and piling up debt. That was all.

4. No where did I say he is lower class. Hell, I said they make good money. Some good reading skills there.

5. Enjoy your day.

Sorry, I just saw yes. Yes I'd agree it is systemic.

In the US a car is a necessity for many people to get to work. If you are arguing that a car isn't a necessity then you lose all ground immediately.

Of course and in this thread I already went over this with another user.

@Chutebox: " Yes I'd agree it is systemic."

Then why primarily discuss it in terms of individual actions?

Like they say, something's got to give. Recession coming...eventually.

Say whaaaaaaat?

I bought a brand new Mazda CX-5 Grand Touring for 28k in 2016. Last year I bought a 2 year old Chevy Cruze for 13k.

My first car was an 8 year old Honda Accord for $2500. That car lasted me for 6 years.

Some additional data from today:

Retail sales were so bad, it's either suspect data or a recession warning

Retails sales plunged 1.2 percent in December, shocking economists who expected a 0.2 percent gain.

The report immediately raised new fears of recession, but economists said the report is also so negative against other more positive data, that it appears suspect.

Even so, economists are slashing fourth quarter GDP growth estimates, and also keeping a wary eye on jobless claims, which showed a slight increase for a third week in a row.

The drop in sales raised new concerns about the consumer, which accounts for more than two-thirds of the economy.

https://www.cnbc.com/2019/02/14/retail-sales-were-so-bad-its-either-suspect-or-a-recession-warning.html

That same car is over 30K MSRP today: https://www.mazdausa.com/vehicles/cx-5/trims and Mazda's are some of the most affordable cars.

Here's a good take on it: https://www.creditdonkey.com/spend-car.html

Anywhere from 10%-36%. Obviously the less you make the more you would likely need to spend on a car as a percent of income. If you average car used car is 20K then for a 4 year loan you would already be at 5K a year before taxes, maintenance, insurance or even APR%.

Here's a good graph:

From the article: 10% of your salary: If you want to be frugal about buying a car, stick to 10% of your annual salary. If you make $50,000 per year, that means you can spend $5,000.

That's probably not feasible for the average driver. This rule may only work if you need a car to literally get from Point A to Point B.

Does spending 10% of your salary make sense? If you make $50,000 per year, this probably won't work. That leaves you $5,000 for a car, which may or may not fit within your car expectations.

Because my mind zips around way too fast for me to keep up to be honest.

lol Trump changed the freaking tax code, not California or Massachusetts. SPIN SPIN SPIN

@Serraph105: I keep intending to address this at a full pv, but I'll adress it here who instead.

The fact that inequality keeps rising and leaving people behind is a bad thing is not as much of a foregone conclusion as you might think. There is no shortage of articles claiming that rising inequality is good from the likes of National Review.

No one pays federal taxes to states. What is wrong with you?

@mattbbpl: what's their logic on that reasoning?

Usually that higher inequality results in higher work incentive.

I don't see how that will result in fending off a recession to be honest. I see people allowing reality to set in and work less hard while the niave will work harder for less money like most people did during the recent recession.

@Serraph105: Yeah, I'm not defending the idea, just stating that it's prevalent.

Ah, I see. So basically your saying that there are groups of people who defend rising inequality as a good thing and not to think there's a universal negative view of it. Right?

It feels a little like using the argument that the relatively small inequality between those who haven't found a job in 2 years time and those who have, or someone who cleans compared to a team lead in a package sorting center, should be maintained or enlarged to secretly justify the ever expanding much greater inequality between the poorest and wealthiest. I wonder how they think that this greater inequality motivates anyone, realistically speaking?

How high an inequality does there 'have' to be, to be motivation enough to get almost every (reasonably healthy) person in a country to do a job they probably don't like to do?

That is a question that needs to be researched. I wonder if there are good studies done on the matter. Because I am convinced an inequality of only around four times that of the poorest would be enough to support even long hierarchies in jobs (even if you take away the ability for a family to pass on wealth from one generation to the next), which is far removed from the inequality in most countries today where the richest own as-good-as-infinitely more than the poorest.

@michaelmikado: $5000 a year is a $416 monthly payment.

That is outrageous.

If you're young or on a budget there are literally millions of cars out there for <$250 a month.

Never buy new, always make the biggest down payment you can, and never trade in a vehicle that will cause you to go upside down on a a loan.

@Nuck81: That may be true but that's what the average used car is. If you need a minivan you are paying 30K minimum new. Even decent used minivans are expensive. I'm not really trying to get into the finer points of car buying. What I am saying is that relative to needs and income, cars cost a lot. Not all car buyers can take advantage of getting the cheapest, smallest car when their priorities are safety, reliability, and room for their families.

@Serraph105: Right. It's good practice to know common opposition arguments, and those of some of the more indefensible positions are at least good for a laugh.

@michaelmikado: I literally bought a town and country two weeks ago.

We traded in a 2014 Escape that had been paid off and received $10,500 in trade in.

I took a deal on a 2016 t&c platinum for $18,000.

After the trade I we owed $7,500 and I put $3,000 down.

Our payments are $190 a month for 24 months.

I'll pay it off by the end of the year.

So we bought a three year old mini van with 50,000 miles for less than $200 a month payment.

It's not rocket science.

Who buys this? And if they do, to what point?

I mentioned National Review because they've been on a roll with this topic the last few months. A few random samples from the first page of my Google results:

But actually, only by allowing some people to accumulate vast wealth can we create the incentive structure we need to raise living standards for everyone.

But here’s the catch: Inequality is not a problem so long as economic mobility exists and people at the bottom can still work hard to get ahead.

Technology startups are driven by venture capital, and venture capital is a rich man’s game. The “PayPal mafia” — the group of young entrepreneurs who got rich from that startup — went on to form Tesla, LinkedIn, Palantir, SpaceX, Yelp, YouTube, and others. Their investments helped build Facebook, Spotify, Lyft, and Airbnb, among others. Startup-heavy California has 12 percent of the U.S. population but accounts for 16 percent of its job growth and 14.2 percent of its economic output. Nobody wants to hear it, but inequality is part of what makes that happen.

Go ahead and dig deeper if you like. This type of writing from various right wing think tanks and publications is quite common.

Appreciate the links. I'll def take a look at them.

But you just proved my point. You paid $18,000 for a 3 year old car. The average used car is 20K. Just because you happened to have assets to trade in doesn't mean that you didn't pay 18K for the vehicle.

Why are we still allowing predatory lending practices and the ability to charge 15%-20% interest on.....well anything? Put a damn cap on loan rates and actually have these shit hole lending services justify their underwriting practices. God forbid we do anything about the shadow banking system, which can pretty much do anything they want and primarily target people with lower income.

@HoolaHoopMan: "Why are we still allowing predatory lending practices and the ability to charge 15%-20% interest on.....well anything?"

The free market, baby!

You're not suggesting regulation, are you? Thats a slippery slope towards communism!

Screw it, do away with them all. Need a bank? They're all all payday lenders now! I can't think of a scummier industry right now.