U.S. slowdown to intensify in coming 6 months of 2025 - Series 1

The United States is facing a deepening financial crisis as households buckle under soaring debt and worsening delinquency rates. Credit card balances surged to a record $1.2 trillion in 2024, with defaults skyrocketing to levels unseen since the aftermath of the 2008 Financial Crisis. Simultaneously, auto loan delinquencies have surged to their highest point in 14 years, surpassing even pandemic-era peaks, as millions of Americans struggle to keep up with payments.

Younger generations and subprime borrowers are bearing the brunt of this turmoil, with delinquency rates hitting alarming highs amid rising living costs, tighter credit conditions, and stagnating wage growth. These trends, coupled with a sharp decline in retail sales and historic levels of small business uncertainty, signal a precarious economic landscape where consumer resilience is eroding—raising urgent questions about the sustainability of recovery efforts and the risk of broader financial contagion.

American households are grappling with unprecedented debt levels. Total household debt surged by 93 billion in Q4 2024, hitting an all−time high of 93 billion in Q42024, hitting an all-time high of 18 trillion. Credit card debt drove much of this increase, soaring by 45 billion in the quarter to a record 45 billion in the quarter to a record 1.2 trillion—a $430 billion cumulative rise over three years. Household debt now equals 87% of disposable income, amplifying financial fragility.

Credit Card and Auto Loan Distress

• Delinquencies Surge: Serious credit card delinquencies (90+ days overdue) rose to ~7% in Q4 2024, the highest since the 2008 Financial Crisis. Younger generations are disproportionately affected, with delinquency rates of 9–11%.
• Subprime Borrowers Hit Hard: For this group, serious delinquencies reached 22% in Q3 2024—a 12-year high. Subprime borrowers account for 23% of the consumer credit market.
• Defaults Spike: Credit card defaults surged 50% year-over-year in the first nine months of 2024, totalling $46 billion—the highest since 2010.
• Auto Loans Strain: Serious auto loan delinquencies climbed to 3.0% in Q4 2024, the worst level in 14 years, surpassing peaks seen during the 2001 recession and 2020 pandemic.

Retail Sales and Credit Access Worsen

U.S. retail sales unexpectedly fell 0.9% month-over-month in January 2024, far below the estimated 0.2% decline. Sales in the “control group” (a core GDP component) dropped 0.8%, contrasting with forecasts of a 0.3% gain. Concurrently, credit rejection rates spiked to 23%—a decade high—with nearly half of applicants denied credit limit increases, exacerbating financial pressures on households.

Small Business Uncertainty Skyrockets

The NFIB Uncertainty Index for small businesses recorded its largest monthly jump in history, rising to 100 in January 2024—the third-highest level on record. Escalating trade tensions and economic volatility have left firms hesitant to invest, further clouding growth prospects.

Conclusion

America’s debt-driven consumer strain and weakening retail activity, paint a troubling picture for the global economy. Rising delinquencies, tighter credit access, and heightened business uncertainty suggest mounting headwinds that could deepen slowdowns in 2024 and beyond. 

The combination of tariffs and immigration policies could introduce uncertainty, reduce consumer spending, and slow business investment The uncertainty surrounding these policies has led to market volatility, with investors adopting a more cautious approach, potentially reducing economic activity. 

The interplay of these policies with the existing economic environment suggests a complex scenario where growth might be tempered by inflation and policy uncertainty, potentially leading to a slowdown. The increase in delinquency rates is a sign of stress in consumer finances, which could further contribute to or be exacerbated by an economic downturn.