CLARKONOMICS: New data about late payments on car loans suggests some positive movement in the economy.
TransUnion reports 60-day late pays are at the lowest level they’ve been since tracking began in 1999. The delinquency rate is less than one-half of 1 percent. That means less than 1 out of every 200 people with car notes are delinquent on them. That’s fantastic news.
The whole reason we’re in so much trouble right now is because of excess borrowing, excess speculation and excess promising. It was way too easy to borrow money for way too long.
It got to the point that the average American took on debt of about $1.36 for every dollar earned at the peak of the trouble, which was about twice as much as the historical average. Today we are at a collective debt level of $1.14 for every dollar earned. So we’re going in the right direction, but there’s still more to be done.
I just find it very heartening that people are still getting better and better at handling their obligations, even in the midst of a sluggish job outlook and a recovery that doesn’t feel like a recovery.
The car loan delinquency numbers from TransUnion echo a decrease in delinquencies on home loans and credit cards, as well. Taken collectively, all are strong leading indicators of when the economy can truly recover.
The things that got us into trouble were people essentially exhausting themselves financially with obligations.
Take the housing market: Real estate was highly speculative and that exhausted us. We built far too many housing units. Up to 10 million sat vacant before the market fell apart. Now you see headline after headline talking about housing as still being in the toilet. But that is not true in more and more places. There’s been no new building to speak of and natural population growth has started to soak up the existing excess.
On the issue of the government, people talk about bloated federal hiring. But really, state and local government employment was too large a percent of overall hiring activity in the United States. Yes, it’s rough if you’re the one facing the layoff now. Yet the reduction of headcount at state and local levels is a necessary part of the process of rebalancing the economy.
Mark this well, though: The hardest work is yet to be done. We’ve got to deal with the obligations of the federal government on the promises of Medicare and Medicaid, and Social Security to a lesser extent. We’re not really going to make any lasting progress until that trio is dealt with head-on.