It’s not a credit crunch sir. We just can’t approve YOUR application
July 18, 2023
–Retail Sales today expected 0.5% m/m. Quiet day in rates. Tens eased 2 bps to 3.795%. SOFR curve slightly more inverted with reds +2.125, greens +4.375 and blues +4.625. FFQ3 settled 9468.5 essentially sealing a hike next week (final settle should be ~9467.5 on 25bp hike). FFF4 settled 9466.5, essentially the same price as August, an indication that the market is taking the Fed at its word that no eases are coming this year, but probably no more hikes either.
–NY Fed SCE (Survey of Consumer Expectations) paints a picture somewhat at odds with Waller saying last week that banking turmoil in March hasn’t really led to a credit crunch. Below are bullet points with emphasis added:
- The application rate for any kind of credit over the past twelve months declined to 40.3 percent from 40.9 percent in February, its lowest reading since October 2020. Application rates declined to 11.9 percent for auto loans and 12.5 percent for credit card limit requests, but increased to 24.8 percent for credit cards, 6.5 percent for mortgages, and 5.3 percent for mortgage refinances.
- The overall rejection rate for credit applicants increased to 21.8 percent, the highest level since June 2018. The increase was broad-based across age groups and highest among those with credit scores below 680.
- The rejection rate for auto loans increased to 14.2 percent from 9.1 percent in February, a new series high. It increased for credit cards, credit card limit increase requests, mortgages, and mortgage refinance applications to 21.5 percent, 30.7 percent, 13.2 percent, and 20.8 percent, respectively.
- The proportion of respondents reporting that they are likely to apply for one or more types of credit over the next twelve months rose to 26.4 percent from 26.1 percent in February.
- The average reported probability that a loan application will be rejected increased sharply for all loan types. It rose to 30.7 percent for auto loans, 32.8 percent for credit cards, 42.4 percent for credit limit increase requests, 46.1 percent for mortgages, and 29.6 percent for mortgage refinance applications. The readings for auto loans, mortgages, and credit card limit increase requests are all new series highs.
A piece by Axios outlines a few other factors hitting the household sector this fall. 1) Student loan repayments start in October. 2) Pandemic-era funding for child care will end (estimate that 70k child care programs will close) 3) Work requirements for food stamps will come back into effect this fall. That will likely cause at least 500,000 people to lose their food assistance.
https://www.axios.com/2023/07/17/student-loans-child-care-medicaid-food-stamps-inflation
–In other news Ford fell about 6% yesterday as the price for its electric pick-up truck was slashed. That’s a bit over $3b in market cap. AT&T fell 6.8% to a new low, around $7b in market cap. Pretty big numbers, but from FT: Chinese developer Evergrande reveals $81bn loss from property crisis
