The Delinquency Rate is reported quarterly by the Board of Governors of the Federal Reserve and is an essential factor in determining the overall health and sustainability of an economy. It refers to the percentage of loans within the nation’s financial institution’s whose payments are declared delinquent. The Federal Reserve defines a delinquent loan or lease as one that is past thirty days due and is still accruing interest. The delinquency rate serves as an excellent predictor for economic recessions, because it examines the cracks in an economy’s armor. An increase in the rate does not bode well for the economy. More often than not the delinquency rate is one of the first indicators to exhibit signs of economic hardship.
The Federal Reserve’s delinquency rate is broken down into three categories: (1) real estate, (2) consumer, and (3) total loans and leases. Real estate loans encompass residential, commercial, and farm land loans and make-up the largest share of all of the loans and leases in the country. Consequently, delinquencies in real estate will have the largest impact on the economy. Consumer loans are credit card loans from all commercial banks. And the total loans and leases figure grabs the first two categories and adds in agricultural loans, commercial & industrial loans, and leases.
The delinquency rate formula is very simple. It’s the number of loans that are delinquent divided by the number of held institutional loans. The table and graph below break-down the quarterly average and annual percent change of the nation’s Delinquency Rate.