As Trump prepares to take office once again, he’s set to inherit what he’s calling another 1929 depression. The labor market continues to decline at a steady pace, credit defaults are climbing to all-time highs, and home sales numbers are the worst most of us have seen in a lifetime.
In the last year, government spending growth reached a whopping 20%. Our nation’s budget deficit is over 6% of GDP. Yields are also lingering in concerning territory.
Compared to when Trump walked into the White House in 2017, today’s economic and market landscape set a different stage. We can assume he’ll probably run the same plays he’s familiar with, hoping to achieve the same success from his last stint.
Interest rates aren’t the same as they were last time around. For the past two years, mega cap stocks have been running hard. This new era we’re in may call for new strategies. How will the big man shake things up?
Here, we’re focusing on the consumer credit crisis, a weakening manufacturing sector, and exposing even more default cracks in the banking world. Let’s saddle up for the next leg of our epic journey into the unknown.
Default Settings
As US credit card defaults jump, we could be on the verge of an incoming credit event. Years of inflation were a huge blow to poor communities and we’re sitting at the worst delinquency rate in 14 years.
The bottom third of American consumers are maxing out credit cards and defaulting on loans at levels we haven’t seen since 2008. They’re also draining what’s left of their savings accounts to cover necessities.
In the first nine months of 2024, US credit card defaults reached $46 billion and they’re now up more than 50% year over year.
While we’re checking in on our nation’s working class, we need to also address further weakening in manufacturing.
In December, Chicago’s PMI index received the second-lowest reading since 2020, falling just shy of 37 points. This puts the manufacturing sector at its 13th month of consecutive contraction.
The new orders index also reached its second-lowest level since 2020. More than half of respondents reported fewer new orders for the first time in almost 5 years. These figures sure look and feel like a recession is already here.
Driving Factors
Hopping from Main Street over to Wall Street, we’re continuing to see the plaster flaking off the facade of commercial banking.
In the past, we’ve talked about how banks have been looking the other way when it comes to CRE risk. They’re also turning a blind eye to another bubble on the verge of bursting: auto loans.
In a recent S&P report, it was revealed that the banking industry’s auto loan delinquency ratio jumped to 3.13% from 3.05% in the previous quarter and 2.95% in the prior-year period. Delinquent auto loans rose to $16.18 billion, up from $15.81 billion in June.
The number of problem banks on the FDIC’s list increased by two in Q3 for a total of 68 banks. The total assets held by those banks jumped by almost $4 billion.
Another indicator: car dealerships are defaulting on floor plan loans, or retailer financing for those large-ticket items displayed on lots and showroom floors.
Specialty lenders, traditional banks, and auto manufacturers issue short-term loans to dealerships to purchase items and they are then repaid as the items are sold. Defaults here are a major sign of desert-dry business conditions.
Speaking of dry conditions, red wine sales may also be giving us a taste of what’s to come.
In San Francisco, wine experts are reporting the collapse of sales at restaurants. With declines of up to 25% year over year, they say it’s the worst year since they began keeping records.
Given our economic climate, we’d venture to guess that Americans might be opting to share a bottle at home and skip hefty markups at the bar.
When Old and New Collide
For most of us, the Great Depression of 1929 was just a chapter in our history books. We weren’t alive to experience what life was like in the US at the time.
If we’re lucky, we may have heard tales from family elders of how they weathered the storm and made it through to the other side.
Will 2025 hold the same economic fate for us as 1929 did a few generations ago? As always, time will tell.
On the hero’s journey, we’re often faced with the same problem over and over again until we finally learn our lesson. That learning gives us the key to unlock the next leg of the journey with brand new challenges.
Although we may feel like we’re taking a huge step backwards into the past, going back is often a higher calling. An invitation to finally get things right. When we’re faced with both the old and the new at the same time, we’ll show up and conquer.
Once the battle is over, we integrate it all and become masters. Remember, a hero doesn’t settle, they evolve.
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