Bad news for Trump: Many Americans can’t make their car payments | What that means for the economy

While the US economy appears on the surface to be in good shape; consumers are still spending, the stock market keeps going up, and companies continue to invest, some worrying signs that not all is well are starting to pop up. One that has experts truly concerned is that car loan delinquencies are on the rise, especially among subprime borrowers.

According to Fitch Ratings, the share of subprime auto loans that are 60 days or more late is currently at 6.43%, a higher level than the past three recessions. Typically, Americans will stop paying other financial obligations before they forgo car loans because cars are such a necessity in the United States, which is why high delinquencies are raising alarm.

Repossessions are also at their highest level since the Great Recession of 2008 and 2009. George Badeen, who runs Midwest Recovery and Adjustment in Detroit, told the Guardian that repossessions are surging, especially in the sub-prime auto market.

Car loan delinquencies could be a canary in the coalmine for US economy

“Distress in auto lending broadly is often seen as a bellwether to changing circumstances in the US economy,” Brett House, an economics professor at Columbia Business School told the Guardian. “Americans particularly in the lower-income brackets tend to put their highest priority in auto payments.”

“So when we see stress in the auto financing market, we typically receive that as an indication that household finances are getting tighter,” he added.

There are serious concerns that the job market could weaken further and layoffs become more prevalent. This would put more strain on household with low and middle incomes, which are the foundation of the US economy.

While currently consumers are spending, nearly 50% of it is coming from Americans with incomes in the top 10%. Their increasing net worth, thanks to the rising stock market, is what’s propping up their spending. That tap could dry up if there is a correction in the market.

It’s expected that the Federal Reserve will lower interest rates when policymakers meet at the end of this month after Chair Jerome Powell signaled that propping up the labor market outweighed bringing inflation down.

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