TikTok Bad Omen for the Economy

This article is from the free weekly Barron’s Tech email newsletter. Sign up here to get it delivered directly to your inbox.

Car Trouble. TikTok’s ability to surface previously unknown talent, from musicians to comedians and chefs, is well documented. The popular social media app can also be helpful in another way: giving investors a real-time glimpse into the economy.

And the app’s latest trend could point to trouble. There are an increasing number of videos about a deteriorating used-car market. It may signal a broader recession has already begun.

Over the years, I’ve observed that tracking topics that resonate on TikTok—and reading user comments for those posts—can be an early indicator for shifts in business. The app was inundated with “I got laid off” videos before a wave of tech workforce reduction announcements in 2022. During the pandemic, I saw videos of big crowds waiting in line at retailers to buy new videogames or new PC graphics cards, foreshadowing strong financial results for those categories.

The latest trending topic on TikTok is more pessimistic. I’ve seen app users searching for terms like “falling car prices” and “unable to afford car payments.” My main feed currently shows videos about used-car auctions for repossessed vehicles. Commenters sound fearful about auto loan delinquencies. It suggests consumers are having more trouble paying off their loans.

That’s a contrast to a year ago when the feed was filled with car buyers boasting about their $1,000 monthly car payments.

This gloomy outlook matches the commentary from semiconductor companies during earnings season. Leading chip makers that serve the auto and industrial markets—sectors that analysts thought were strong—gave disappointing forecasts that surprised Wall Street.

In late October,
ON Semiconductor
(ticker: ON) executives said higher interest rates for car loans had started to hurt auto demand and they expected the uncertain macro environment to last heading into next year. Later the same day,
Lattice Semiconductor
(LSCC) management said they also saw weakness in the auto market at the end of third quarter and said it has continued into the current quarter.

The auto sector was one of the key areas that had held up over the past year. A slowdown in the sector means the Federal Reserve’s rate hikes are finally crimping demand across the big-ticket economy.

For now, though, the auto bubble has yet to pop, at least according to the data.

According to Edmunds, 17.5% of buyers who financed a car in the third quarter had a monthly loan payment of $1,000 or more, with an average payment of $736, an all-time high. It’s a trend that can’t last. When the default cycle begins, it will be painful for many owners—along with car makers and dealers.

According to Cox Automotive, the firm’s Manheim Used Vehicle Value Index fell by 4% versus the prior year for October. That could just be a seasonal change. But don’t be surprised if the prices drop significantly more in the coming months. TikTok is a good place to kill time, but it’s increasingly a source of real insight too.