Consumer spending in the US has begun to decline, indicating possible economic difficulties in the future, as inflation continues to affect the everyday lives of many Americans.
Leading consumer financing provider Synchrony Financial claims that there is mounting evidence that consumers are being forced to change their purchasing patterns due to high pricing and economic uncertainty.
In a landscape marked by rising debt and waning consumer confidence, households are becoming more cautious with their finances. This shift in consumer behaviour comes at a time when inflation expectations are at their highest in decades, and the long-term outlook for economic stability remains uncertain.
Consumer Debt and Delinquencies on the Rise
The strain on American households is evident, with growing debt levels leading to an increase in delinquencies on auto loans, credit cards, and home equity lines of credit. The Federal Reserve reported last month that these delinquencies have edged higher, a trend that experts warn could worsen if consumers continue to tighten their belts.
Max Axler, Chief Credit Officer at Synchrony Financial, noted that “purchase volumes have gone down across the industry as consumers across all income groups become more thoughtful about spending.” This cautious approach is being felt across various sectors, with even wealthier Americans reducing their spending in response to the increased cost of living.
Although the vast majority of consumers are still managing to keep up with their loan repayments, the increased reliance on credit and rising debt levels are putting a strain on finances. As consumer debt rises, many are becoming more vulnerable to financial stress, especially if delinquencies continue to rise as expected.
Retailers and Banks Brace for Potential Fallout
Retailers are already feeling the effects of the slowdown in consumer spending. Large companies such as Target and Walmart have reported that shoppers are waiting longer for deals or opting for lower-priced alternatives to ease the pressure on their wallets.
This cautious spending behaviour is consistent with broader trends seen across the economy, where consumers are shifting their priorities in response to the inflationary environment.
Additionally, concerns are mounting in the banking sector, with analysts highlighting that slower loan growth could lead to a reduction in net interest income for financial institutions.
According to HSBC analyst Saul Martinez, a slowdown in consumer spending and loan growth could have far-reaching consequences for banks, resulting in a drop in overall revenue.
The dip in financial sector stocks, including those of American Express, Synchrony, and Discover, reflects growing concerns over the financial health of American households.
