Consumer loan delinquencies and unemployment rates have historically followed similar paths – either both increasing during times of stress, or both declining in periods of prosperity. But the pandemic has upended that coupling, as consumer loan delinquencies have trended down while unemployment has increased significantly.
During the Great Recession of 2007-09, both measures peaked in the fourth quarter of 2009 with unemployment at 9.93% and consumer loan delinquencies at 4.77%. As of Sept. 30, the end of the third quarter, consumer loan delinquencies are at 1.83% compared to an unemployment rate of of 8.83%.
There are a number of reasons for this: Federal stimulus programs targeted to consumers, including the temporary increases to unemployment benefits, and various payment deferral options offered by lenders have combined to help consumers stay current on their obligations. As these payment deferral plans expire and without any additional consumer targeted stimulus, consumer loan delinquency rates are likely to rise given the current levels of unemployment.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.