In 2023, the Poor Will Get Poorer

Key Takeaways:

• Strong consumers managing debt well definitely exist. 
• However, it’s the struggling consumer who might be about to implode we should be worried about heading into 2023. 
• Discouraging data in the used car market adds to our concerns and our haves and have nots economic thesis. 

We called the economy dichotomous in 2022. 

A segment of consumers crushing it financially, spending without much regard for the rising cost of most everything. These are the people presumably responsible for this bullish hospitality industry data we passed along the other day: 

• In November, restaurants and bars in the U.S. did more than $90 billion in sales. That’s a record high. 
• They’re on pace to cross $1 trillion in annual sales for the first time ever.

They’re also traveling again. They’re the relatively well-heeled the banks refer to as “strong” consumers when reporting earnings and still-low credit card delinquencies, particularly among borrowers with high credit scores. 

But what about the low credit score, or subprime borrowers? What about them? 

Certainly, they help contribute to the massive increase in credit card debt. Logic tells us they’re probably mostly responsible for the crash in personal savings. 

At the same time – as The Juice relayed the other day – Transunion expects credit card delinquencies to increase in 2023, particularly among borrowers with bad credit. 

If you have a credit score between 501 and 600, you’re considered subprime. In the 300 to 500 range, you’re deep subprime. Interestingly, about 23% of public auto loans go to subprime and deep subprime consumers. 

Among these borrowers, auto loan delinquencies have risen rapidly since 2019:

• In November 2019, 4.3% of subprime auto loans were 60 days past due. That number hit 5.9% this November. 
• In November 2019, 5.9% of deep subprime auto loans were 60 days past due. That number popped to 8.2% last month. 

If this isn’t more evidence of a dichotomous economy and subsequent writing on the wall for a consumer debt crash, especially among struggling consumers, we don’t know what is. 

The Bottom Line: In 2023, The Juice will keep our eye on three things as it pertains to consumer debt:

• Credit card debt delinquencies
• Auto loan delinquencies 
• Mortgage loan delinquencies and foreclosures
• Non-payment of rent

Logic dictates that when you’re hurting and have to make tough budget decisions, you miss or stop making credit card payments first. Then, the car payment, because you can live without a car. Might not be easy, but you can do it. You do everything in your power to make your house payment. 

No matter how well you’re doing financially today, there’s a good chance you’ve been in this or a similar situation before. Or you at least know somebody who has struggled to pay the bills. 

It’s sort of a domino effect. One we’ll pay close attention to in 2023.

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