Jeffrey Gundlach, CEO of DoubleLine Capital, known as the “new bond king,” recently issued a warning in an interview with Fox Business News that the continuous increase in US household debt and slowing corporate growth will ultimately lead to an economic recession.
In terms of the US economy, Gundlach pointed out that the data released last week is quite worrisome. He explained that the Leading Economic Index, released by the US Economic Advisory Council last Friday, has declined for two consecutive months. Meanwhile, the May New York State Manufacturing Index, 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 in the US did not show acceleration, Gundlach pointed out that high prices still put pressure on American consumers, and many people are using credit cards to alleviate this burden. He emphasized that credit card bills are gradually accumulating and becoming a major burden for people.
According to a report released by the Federal Reserve Bank of New York on the 14th, the total amount of US household debt surged to $17.69 trillion in the first quarter of 2024, reaching a historical high and increasing by $184 billion or 1.1% from the previous quarter. This growth is mainly due to the sharp increase in mortgage loan balances, which increased by $190 billion to reach $12.44 trillion by the end of March. Auto loan balances slightly increased by $90 billion, continuing the upward trend since 2020, reaching $1.62 trillion. Although credit card loan balances decreased by $140 billion to $1.12 trillion, it is still close to a historical high. (The decrease is due to US consumers making 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 debt policy in the US, even if it means increasing personal debt, which may make their financial situation more vulnerable.
As US household debt continues to increase, Gundlach warns that an overall economic decline is inevitable. However, he admitted that it is difficult to determine exactly when this situation will affect the US economy.
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