All due apologies to Tom Brady.
When in doubt, things looking frail, spirits down, pump more air into the balloon. That balloon goes by the name consumer confidence. MSM has been pushing the pedal for it friends at the Fed that the economy is on more terra firma owing to strong consumer spending. But as one television personality like to chortle, Not so fast.
In an environment where the Fed recently described household spending as "growing strongly," we have often questioned why consumer delinquencies would continue to grow (see "Subprime Auto Delinquencies Soar Past Crisis Levels, Now Highest In 20 Years" and "Subprime Snaps: Largest US Subprime Auto Lender Delays Earnings Due To "Accounting Matters"") if household financial conditions were truly improving. It turns out that UBS pondered the same question and agrees that deteriorating lending standards just might have something to do with it. Matthew Mish of UBS, recently updated his strategy piece on the health of the US consumer and the results are less than stellar with Mish concluding that consumer incomes are not expanding in line with consumer credit and therefore "consumer delinquencies...will not fall in coming quarters, consistent with our broader thesis that the credit cycle is in the later innings". Mish found a growing divide between consumers that are financially sound and those at the lower end of the earnings spectrum where financial conditions are deteriorating. So while aggregate data may suggest improvement in the consumer overall it's unlikely to impact deteriorating delinquency rates on consumer loans. Per Matthew Mish of UBS:
Our analysis of the consumer lending environment and stressed US consumer fundamentals seems to support the thesis that while lending is extending to riskier consumers, the finances of those consumers are not materially improving. The recipe is likely to result in consumer delinquencies that will not fall in coming quarters, consistent with our broader thesis that the credit cycle is in the later innings as ebbing fears about a corporate earnings recession are offset by rising concerns over higher delinquencies and tighter credit availability.
.zerohedge.com/news/2016-07-30/consumer-lending
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