Wealthier borrowers are getting behind on their debts, a warning shot for the economy

More borrowers with pristine credit have been falling behind on their bills, a warning shot for the economy under President Donald Trump.

A recent snapshot of quarterly household credit showed an uptick in seriously delinquent auto loans, credit cards and home-equity lines of credit at the end of 2024, according to the New York Federal Reserve.

Monthly data, however, suggests a worsening backdrop for top borrowers since Trump took office in late January. The finances of high earners will play a pivotal role in the next few months as Trump’s tariff fight threatens to snarl supply chains and investors worry about their stock portfolios.

The first chart below shows the rate of seriously delinquent auto loans to prime borrowers climbing in April to its highest level since the 2020 pandemic, according to Intex data compiled for MarketWatch. These auto loans were packaged into bond deals and were at least 120 days overdue.

The second chart shows delinquencies of at least 60 days past due returning to prepandemic levels, even though the U.S. unemployment rate in March was still a low 4.2%.

While the uptick in auto delinquencies isn’t yet a crisis, it has Wall Street worried, given recent tumult in U.S. stocks and the prominent role that America’s most coveted borrowers now play in the economy.

“Consumers are a key element because they do drive the U.S. economy,” said Andrew Hsu, a portfolio manager at DoubleLine. “For the past 10-12 months, the prime consumer has really been propping up the economy, and a lot of the reason for that is because the prime consumer continued to spend.”

Toxic mortgages to subprime borrowers played a major role in the 2007-’08 global financial crisis. This time, investors worry about cracks among prime borrowers spelling trouble for the economy. Prime borrowers generally have a 660 to 719 credit score.

A recent retail-sales report suggested some front-loading by consumers looking to avoid tariffs, but prime borrowers already were increasingly falling behind on their car loans and other forms of credit.

“We see this in real time,” Hsu at DoubleLine said. “We see it every single month, that things are deteriorating.”

Read: Parents are ‘hunkering down financially’ to brace for Trump tariff impact

The U.S. has increasingly relied on the wealthiest 10% of earners to drive half of all spending — and therefore economic growth.

While the stock market isn’t the economy, it can play a huge role in how people feel about their finances. That feeling was magnified in recent years by skyrocketing home prices and the boom in stocks.

The below chart shows the vast wealth flowing to the richest 10% in the U.S. in recent years, simply by their owning the bulk of stocks and mutual funds since the pandemic.

With stocks tumbling in 2025, it’s an open questions whether wealthy people will keep spending as tariff uncertainty lingers.

“We’ve seen a significant downturn in equity values,” said Cindy Beaulieu, chief investment officer North America at Conning. That matters because booming stocks can give a boost to the “wealth effect” by encouraging spending by people who feel richer, but act as a drag on spending when they fall.

“We are expecting, as the economy is slowing in front of these potential tariffs, that you are just going to see a downshift — even in the wealthiest consumer,” Beaulieu said.

Trump pivoted to a 90-day pause on his April 2 “reciprocal” tariffs for most countries, except China, after extreme volatility swept through U.S. markets.

But he’s already imposed a 10% tariff rate on many imports, as well as sector-specific duties, which risk boosting costs for many things, including food, clothing and cars, while increasing fears of a U.S. recession.

Wall Street had been expecting a rosy backdrop for the stock market this year, given Trump’s “pro-growth” agenda of deregulation and additional tax cuts. Instead, his first 100 days unleashed tariff shocks, tumbling stocks, angst over Elon Musk’s role in government and attacks by Trump on the Federal Reserve’s independence.

See: What the ‘fire Powell’ trade could look like as Trump attacks Fed chair again

Conning’s Beaulieu thinks the backdrop of uncertainty could prompt more people to shop at discount stores and to skip planned trips abroad, staying local instead. “Frankly, some of that has already been happening,” she said, noting that her firm’s house view has been that the U.S. will enter a recession this year.

Trump lashed out against Powell again on Monday, after the Fed boss last week reiterated his wait-and-see approach to rate cuts until the tariff picture is more clear. The central bank could face inflation pressures from tariffs but also potentially a sputtering economy.

Read: Fed could be forced into steep rate cuts if U.S. economy is a casualty of trade wars, Citi says

There’s hope for a “light at the end of the tunnel” on tariffs in which prime borrowers might navigate the months ahead relatively unscathed, said Mike Reynolds, an investment strategist at Glenmede.

“But there’s also a scenario where tariffs come through and there’s more economic pain,” he said. “There is one person who knows where this is going — and he sits in the Oval Office.”

Yields on the 10-year Treasury BX:TMUBMUSD10Y rose sharply Monday to 4.41%, showing no letup of the recent selloff in longer-duration U.S. debt, while the S&P 500 index SPX tumbled 2.4%, edging closer to joining the Nasdaq Composite COMP in bear-market territory. The dollar DXY lost further ground against a basket of rival currencies.

Check out: The dollar will remain the world’s reserve currency — for now. But stocks and bonds could keep struggling.