On paper, the U.S. economy still looks solid. A tech investment boom is boosting the stock market and the headline unemployment rate remains near historic lows.
But with the federal government shutdown halting the release of jobs and inflation reports, policymakers and investors have been left without the hard data that normally anchors their view of the economy.
In its absence, unofficial signals are gaining ground as alternative recession indicators. These are the everyday measures that often flash red before the official data does, and range from where people are shopping to how they’re paying the bills.
And one of the clearest of these is sitting out on the drive…
On paper, the U.S. economy still looks solid. A tech investment boom is boosting the stock market and the headline unemployment rate remains near historic lows.
But with the federal government shutdown halting the release of jobs and inflation reports, policymakers and investors have been left without the hard data that normally anchors their view of the economy.
In its absence, unofficial signals are gaining ground as alternative recession indicators. These are the everyday measures that often flash red before the official data does, and range from where people are shopping to how they’re paying the bills.
And one of the clearest of these is sitting out on the driveway.
Missed car payments
If there’s one thing Americans need, it is their cars. For that reason, the rate of missed payments on auto loans offers telling insight into U.S. household finances.
There are worrying signs. The share of so-called delinquent subprime car loans – those that are overdue by 60 days or more – reached a record high of 6.5% in January, and remains near that level, according to Fitch Ratings. Repossessions and delinquencies often rise before broader credit defaults, making them a classic early warning sign.
Tracy Chen, a portfolio manager at investment firm Brandywine Global, said that while the overall consumer picture is not yet in trouble, “cracks are showing, especially among subprime borrowers, the young, and the low-income cohort.”
Meanwhile, the recent bankruptcies of auto lender Tricolor Holdings, which specialized in loans to undocumented immigrants, as well as car-parts maker First Brands have raised the alarm on Wall Street that lower-income borrowers might be suffering.
Goldman Sachs president John Waldron said last week: “There’s been a lot of lending in there and if there’s weakness in consumer capabilities, then we’re going to have a problem. It doesn’t necessarily mean recession but we can definitely start to see some negative effects in credit.”
Crowdfunding groceries
Another potential stress signal is showing up on the fundraising platform GoFundMe. Chief executive Tim Cadogan recently told Yahoo Finance that users are launching more campaigns for everyday expenses, not just medical bills or emergencies.
“We have a category of fundraising we call ‘essentials,’ which are things like rent, utility bills, car payments,” he said. “That category has gone up significantly in the last three years.”
The cost of living squeeze has left household budgets stretched. Consumer prices were up 2.9% year-on-year in August, while rents, groceries, and childcare remain costlier than they were pre-pandemic. President Donald Trump’s tariffs have also led many companies to pass on cost increases to customers.
The pressure now extends to food, suggesting that some families have exhausted usual coping tactics like trading down brands. “In some cases, very sadly, that is happening,” Cadogan said of people crowdfunding groceries. “We’re seeing that more and more.”
Women leaving the workforce
The pandemic put vast numbers of people out of work, and particularly affected women; the problem was so pervasive that economists and women’s policy researchers coined the term “she-cession” to describe it. Women were also slower to return to the labor market after this period.
Another one is brewing. About 455,000 women left the workforce from January to August this year, according to Bureau of Labor Statistics data. That is the fastest since the pandemic and the second fastest since BLS records began in 1948.
Economists have warned that the losses could hurt growth. “It’s diminishing both current and potential growth in the economy,” said Diane Swonk, chief economist at KPMG, per CNN.
The reasons are linked to rising costs for ordinary working people. In some states, families are forced to spend as much as 15% of their income on child care, according to WalletHub. As a result, women with young children are driving the outflow from the workforce, Swonk said.
Return-to-office mandates have also made it harder for many employees to be flexible. Cuts to the federal workforce, where women are heavily represented, have compounded the effect. And some of Wall Street’s biggest firms have been laying off workers in their droves, against the backdrop of a weakening labor market.
Swonk added: “It’s not a zero-sum game. It’s not men or women. We need everybody. We need all hands on deck.”
Pawn-shop boom
Pawn-shop operators are also reporting a pickup in lending, another sign that households are running short of cash. Usually, the better things are for pawnbrokers, the worse things are for Americans.
FirstCash, the largest pawn company in the country, said same-store pawn loans at June 30 were up 13% from a year earlier. And EZCorp, which runs hundreds of pawn stores across the U.S., said loans outstanding rose 15% in the second quarter.
Persistent inflation and economic pressure continue to impact value-conscious consumers who are increasingly turning to us for short-term cash and secondhand goods,” EZCorp said.
Les Gold, owner of the pawn shop American Jewelry and Loan in Detroit, told CNN: “You can’t imagine what’s going on in the economy right now unless you live in the pawn shop.”
Local operators have also said a rally in gold – which recently pushed past $4,000 an ounce – has spurred more Americans to pawn or sell jewelry. “People are bringing in family heirlooms or pieces they wouldn’t normally part with,” one Illinois pawnbroker told the Journal Courier.
What does it mean?
Many of these measures are not conventionally used to signal a recession. But they are so-called leading indicators, meaning they can give early warning signs about what is to come.
Things like labor market and inflation data are the opposite: lagging indicators. They are generally only announced when a downturn has already taken hold.
Unconventional leading indicators can be powerful. Alan Greenspan, chair of the Federal Reserve from 1987 to 2006, is said to have tracked the cardboard box industry as a measure of real-time demand for goods. Incidentally, cardboard boxes are also pointing towards a downturn.
On their own, the rise of pawn loans, crowdfunding for groceries, and missed car payments do not tell us much. But they are exactly the types of barometers that hint at an economic downturn before official data paints the full picture. When they are all pointing in the same direction, it doesn’t bode well.