Consumer Strength Challenged as Spending Drops

Times are tough for the American consumer, even without new student loan payments.

A report Saturday (Sept. 30) by Bloomberg News catalogs the various ills: High gas prices cutting into spending. Delinquent credit cards at their highest rate in more than 10 years. And consumer confidence dipped to a four-month low thanks to inflation and a glum economic outlook among consumers.

“There is some real concern about weakness in the consumer,” Sarah Hunt, a partner at Alpine Saxon Woods, told Bloomberg. Higher gas prices especially indicate “there’s a real spending issue coming up and I think that’s going to impact earnings.”

According to the report, consumers have been “fairly resilient” thanks to a strong labor market, although younger people and lower-income families are showing weaknesses, with the 60-day-plus delinquency rate for subprime auto loans hitting an all-time high in July.

“It’s not a crisis at this point, but clearly the delinquency rates are rising and they’re doing so at a time where unemployment remains relatively low,” said Cristian DeRitis, deputy chief economist at Moody’s Analytics. A modest increase in unemployment numbers is “going to just put more pressure” on those rates, DeRitis added.

Recent PYMNTS research shows some warning signs on the horizon when it comes to consumer spending.

For example, while the American consumer may be “resilient,” just as durable is the percentage of consumers who live paycheck to paycheck.

“Consistently, an average of 60% of individuals in the United States see their monthly obligations eat up the monthly take-home pay,” PYMNTS wrote last week. “Per the latest data, the percentage has inched up to 62%. And in terms of absolute numbers, nearly 10 million more consumers joined the paycheck-to-paycheck rosters by the end of 2022 than had been counted when the series began in March 2020.”

Incomes, meanwhile, have been less of a buffer than one might suspect. The newest report by PYMNTS Intelligence shows that by August, close to 45% of consumers earning more than $100,000 per year lived paycheck to paycheck, compared to roughly 36% just over a year ago. The number of paycheck-to-paycheck consumers have been growing across all income levels. 

“If the future belongs to the young, as the saying goes, then merchants and other businesses reliant on spending power from younger consumers might be girding for a bumpy ride in the months ahead,” the report said. “PYMNTS Intelligence showed that millennials, at 73% of this demographic, are the generation most likely to live paycheck to paycheck. They’re also on the cusp of seeing their spending power be significantly reduced, as student loan repayments will likely decrease disposable income by 6.5%.”