In my last blog post, I noted that the results of our quarterly survey of bank risk managers were quite negative on the topic of residential real estate. Unfortunately, the bad news didn’t stop there. When asked their opinions about consumer credit over the next six months, a large number of survey respondents expected delinquencies to rise on auto loans, credit cards and student loans.
Auto lending had been a bright spot in our previous quarterly surveys, but in the latest survey, 30 percent of respondents expected delinquencies to rise on auto loans and 21 percent expected them to fall. That is a clear shift in banker sentiment.
For credit cards, 40 percent expected delinquencies to rise and 23 percent expected them to fall. And for student loans, 48 percent of respondents expected delinquencies to rise and 13 percent expected them to fall. While the shift in sentiment for these loan types isn’t quite as stark as in auto lending, it’s clear that the uptick we saw in optimism earlier this year has reversed course.
While none of this is shocking, it’s further evidence that persistently high unemployment combined with gridlock in Washington (e.g., the game of chicken we saw politicians playing with the debt ceiling) is making everyone nervous about the economy. Not only are the survey numbers bad news for consumer credit, they don’t bode well for anyone hoping that consumer spending can fuel an economic recovery. In fact, 64 percent of respondents in our survey expected credit card usage to remain below pre-recession levels for at least five more years.