The surge in credit card delinquencies might be a 'harbinger' of a coming recession, Wells Fargo says

• Credit card delinquencies are surging and could a recession signal, Wells Fargo said.
• Late payments on card balances outside of the top 100 banks notched an all-time-high.

Late payments on credit card balances are rising, and that could be a warning sign of difficult times to come in the US economy, according to Wells Fargo.

Strategists at the bank pointed to credit card delinquencies surging among commercial banks. And for banks outside of the top 100 in asset size, late payments on credit card balances hit an all-time high, it said in a note on Tuesday.

Rising late payments put more pressure on small- and medium-sized banks, strategists said, during a time when markets have been increasingly concerned about bank stability and rising debt levels in the US.

Earlier this month, Moody's downgraded several US banks, with S&P making similar moves on Monday. Meanwhile, credit card debt also notched $1 trillion for the first time in early August, according to Federal Reserve data.

Surging credit card delinquencies have also been historically associated with recessions, though a downturn hasn't yet been officially declared and Wall Street forecasters are increasingly expecting a soft landing.

"The economy still has a cash cushion, but many consumers are exhausting their credit, while income growth has slowed sharply," strategists said in a note on Tuesday. "Our outlook remains for a short, moderate recession and then recovery for most of 2024 and likely into 2025."

Strategists at the investment bank have remained bearish on the US economy and stocks. That's because inflation could easily rebound, the bank said in a previous note, and firms in the S&P 500 are still battling earnings pressures.