Some Color on Delinquency Rates

A: Calculated Risk, a daily read by the way, delves into the latest Fed data on delinquencies at Commercial banks. No sign of green shoots here, folks. So for those not really into a dose of reality, look away.

From CalculatedRisk via latest Fed Report:



Here is a quick summary:

RESIDENTIAL DELINQUENCIES: 8.84%, up from 7.85% in Q1 and 4.45% in Q2 2008

COMMERCIAL DELINQUENCIES: 7.91%, up from 6.46% in Q1 and 4.19% in Q2 2008

COMMERCIAL & INDUSTRIAL DELINQUENCIES: 3.73%, up from 3.12% in Q1 and 1.74% in Q2 2008

CONSUMER CREDIT CARD DELINQUENCIES: 6.7%, up from 6.68% in Q1 and 4.86% in Q2 2008

Expect the fed to maintain stimulus until unemployment stops rising and delinquencies start to level off. Since the two are inter-related, the fed is pretty much likely to maintain a zero interest rate policy until unemployment stops rising. I would expect them to know more information than us, or at least earlier information. So, if we see the fed raise rates the first thing that will pop into my head is their confidence that the unemployment rate is nearing its peak for this cycle.

Credit card delinquencies seem to be stabilizing but commercial delinquencies are really surging. Not sure about you, but I will be glued to the CMBX indexes for a while!

For now, as unemployment continues to rise and insurance benefits set to expire for so many without work, expect delinquencies to continue to rise. With U3 at 9.4% and U6 at 16.3%, there is a reason it feels worse than what some green shoot headlines suggest. One difference with this cycle versus past recessions is the massive growth of part-time workers; as 8.8 million people are working part-time for economic reasons. Checking in with the Atlanta Fed, you can see how different this recession is from previous post WW2 cycles:

This is not your average recession and is the deepest slowdown we have faced since TGD. It is what it is.