Consumers fell further behind on their mortgage and credit-card payments in the final months of 2000, lenders have reported–a troubling sign for the nation’s already slowing economy.
Mortgage loan delinquencies–loans that are at least 30 days past due–jumped to 4.54 percent of loans outstanding in the fourth quarter, the highest rate since the third quarter of 1992, the Mortgage Bankers Association reported. That was up from a 4.04 percent rate in the third quarter and 3.82 percent a year ago.
Late payments on credit cards climbed to 3.34 percent of accounts in the fourth quarter, up from 3.21 percent in the third quarter and 3.22 percent in the fourth quarter of 1999, according to the American Bankers Association.
However, the non-mortgage delinquency figures are still below the rates of the mid-1990s and are well within what industry leaders had anticipated.
“As we expected, the number of delinquent accounts has increased as the economy has slowed,” said James Chessen, the ABA’s chief economist, in a prepared statement. “Consumers who are carrying a higher debt load are most likely to feel the effects of an economic slowdown.”
The West Coast continues to buck the national trend, with the lowest rate of mortgage delinquencies by region.
Economists expected to see rising delinquency figures nationwide, largely because personal wealth has declined, growth in personal income has slowed, and severe weather and rising energy costs have squeezed consumers.
The weather issue may have played a particularly pivotal role in mortgage delinquency rates, which rose the most in areas such as the Northeast that were hardest hit by severe winter cold..
“You would expect to see some deterioration in credit quality at this point in the economic cycle,” said Gary Schlossberg, senior economist with Wells Capital Management, an investment management company owned by Wells Fargo & Co.
Far more troubling to economists is the overall level of consumer debt service, which measures what people are supposed to be paying on their debts each month, measured as a percentage of disposable income. That figure recently hit 14.1 percent of after-tax income, the highest level since 1987, said Paul L. Kasriel, chief economist with Northern Trust Corp. in Chicago. And it may understate the real debt burden because it doesn’t account for automobile leases, which have soared in the last several years.
“This debt represents a time bomb for the economy,” Kasriel said. “Maybe that time bomb has started to tick.”
Heavy debt burdens could hinder consumers from buying additional goods and services, which could worsen the slowing economy, he said.
“The higher that number is, the more difficult it is to make these payments, and the less consumers have left over to spend,” Kasriel said.
(Analysts also note that the debt-service-to-income figure, as calculated by the Federal Reserve, is based on total debt and income data for all U.S. households, including those with no debts. Many consumers have much higher monthly burdens.)
However, it is too early to say whether consumers will pare their spending and send the economy into a more severe slowdown, economists said.
“The real key to this is how many people are going to lose their jobs and how many are going to be forced to roll into jobs that pay less,” Schlossberg said.
Those factors ultimately will determine how significantly consumers need to scale back, and whether the delinquency rates will soar over the coming months.
“We don’t really know if we are in a recession now,” said Kasriel. “But if we do go into a recession, consumer debt levels could make it a deeper recession than otherwise would be the case, as people struggle to pay their debts and therefore can’t buy anything else–and even have to cut back dramatically on their discretionary spending.”
By region, the mortgage delinquency rate rose from 3.95 percent to 4.51 percent in the Northeast, from 3.69 percent to 4.28 percent in the Midwest, and from 4.97 percent to 5.52 percent in the South. The mortgage delinquency rate was the lowest in the West, where it rose from 3.16 percent to 3.51 percent.
