- Wednesday, October 16, 2024
In the latest edition of The Institutional View, published on November 15, an important observation was made regarding the state of U.S. credit-card delinquencies. It appears that these delinquencies, both those overdue by 30+ days and 90+ days, are acting as indicators of an upcoming recession.
Historically, an increase in the percentage of credit-card holders who are late in paying their outstanding balances has served as a forewarning of an impending economic slowdown. As consumers' financial situations become strained, they naturally begin to tighten their belts and cut back on various expenditures. This belt-tightening may include reducing spending on nonessential items, such as dining out or travel, as well as necessities like medication and groceries.
To better visualize this issue, two charts have been provided below.
Chart 1: Percentage of Credit-Card Payments Overdue by 30+ Days
This chart offers a clear depiction of the percentage of credit-card payments that have been delinquent for at least 30 days. Looking back at data from 2003, it becomes apparent that a significant hike in credit-card delinquencies in July 2007 served as an early indication of an approaching recession. Furthermore, it also foresaw the impending downturn in the stock market.
Conversely, when the 30+ day delinquency rate experienced a double top formation and subsequently fell below the support level, it indicated an improving economy and served as a bullish signal for the stock market.
Chart 2: U.S. Credit-Card Delinquencies Overdue by 90+ Days
This second chart provides a mirror image of the first, illustrating the increasing number of consumers who are falling behind on credit-card payments by 90+ days. Again, this serves as evidence that consumers are becoming financially stretched and are likely to reduce their spending in the months ahead.
Given these circumstances, it is not surprising that speculation is brewing about the Federal Reserve potentially completing or soon finishing its interest-rate tightening cycle. This speculation also helps to explain why the price of gold is once again approaching the $2,000 per ounce mark.
In a previous column published on November 1, it was mentioned that the trend for gold turned bullish when it surpassed the $1,940 threshold. According to projections, it is anticipated that the price of gold will eventually test its record high of $2,075 in the coming months. Furthermore, if monthly closing prices exceed the $2,100 mark, it is believed that gold could experience a long-term surge towards $3,500 or even higher.
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