DoubleLine Capital’s CEO, Jeffrey Gundlach, known as the “Bond King,” recently issued a warning in an interview with Fox Business News. He stated that the continuous increase in American household debt and the slowing corporate growth will eventually lead to an economic recession.
Gundlach discussed the worrisome economic indicators that were released in the past week. He explained that the Leading Economic Index, published by the Conference Board last Friday, has declined for two consecutive months. Additionally, the New York State Manufacturing Index for May, released last Wednesday, dropped to -15.6, marking the sixth consecutive month of negative growth. These data reflect the ongoing deterioration of the US economy.
Although the inflation data for April did not show any acceleration, Gundlach pointed out that high prices still put pressure on American consumers. Many people are alleviating this burden by using credit cards, which are gradually accumulating and becoming a significant burden.
A report released by the Federal Reserve Bank of New York on the 14th stated that the total household debt in the first quarter of 2024 soared to $17.69 trillion, reaching a historic high. This represents an increase of $184 billion, or 1.1%, compared to the previous quarter. The main source of this growth is the surge in mortgage balances, which increased by $190 billion to reach $12.44 trillion by the end of March. Auto loan balances also slightly increased by $90 billion, continuing the upward trend since 2020, and currently standing at $1.62 trillion. Although credit card loan balances decreased by $140 billion to $1.12 trillion, they are still close to a historic high. This decrease is due to US consumers’ efforts to repay debt after the end of the holiday shopping season last year.
Gundlach further stated that this reflects how people adjust their consumption behavior under the unlimited borrowing policy in the US, even if it means increasing personal debt and potentially making their financial situation more vulnerable.
As American household debt continues to increase, Gundlach warns that an overall economic recession is inevitable. However, he admits that it is difficult to determine when exactly this situation will impact the US economy.
