US Consumer Resilience Tested as Inflation and Tariffs Take a Toll

Consumer spending accounts for more than two-thirds of US economic activity, making a sharp pullback potentially damaging. Despite the pause on high levies, concerns about the ability of consumers to prop up growth persist. Household attitudes have soured, with a focus on cutting costs and slowing leisure and business travel. Savings, accrued during the pandemic and a booming stock market, have largely been tapped out, and households with lower incomes are under increased financial stress.

Key Takeaways:

• The share of outstanding credit card debt that is 90 days or more past due started increasing in 2023 and has continued to rise across geographies and income levels.
• The trend has become particularly pronounced for poorer households, with real-time credit reports from Experian suggesting the pace accelerated in April.
• The overall delinquency rate, which includes all loan types, reached its highest level since 2020 in the first quarter of this year, according to the Fed data.
• American consumers are struggling with other kinds of payments, with the labor market being the primary concern, as a strong labor market is no longer apparent.
• Spending is consistently increasing faster than income, once adjusted for inflation, creating an imbalance that is unlikely to last.
• Pay is no longer soaring for workers in the lowest-paid industries, with lower- and mid-wage jobs stagnating, and pay rising faster in high-wage industries.
• Households in lower income brackets, who drive the bulk of consumer spending, are under increased financial stress, with lower incomes and stagnant wages.

Statistics:

• The share of outstanding credit card debt that is 90 days or more past due increased in 2023 and continued to rise in the first quarter of this year.
• The overall delinquency rate reached its highest level since 2020 in the first quarter of this year, according to the Fed data.
• The unemployment rate has stabilized at a historically low level of around 4 percent.
• Businesses are posting far fewer job openings, and positions are no longer much more plentiful than the number of people looking for work.
• Spending is consistently increasing faster than income, once adjusted for inflation.
• Pay is rising faster in high-wage industries, while lower- and mid-wage jobs stagnate.

Sources:

• "The economy is really vulnerable to anything that could go wrong, and clearly there's a lot that could go wrong," said Mark Zandi, chief economist of Moody's Analytics.
• The New York Fed and research by the St. Louis Fed.
• Experian, one of the three major U.S. credit rating firms.
• Ben Casselman, contributor.
• Federal Reserve Bank of New York, President John Williams.
• The article appeared in print on page B6.