Most official data continues to show the U.S. economy is humming along, with unemployment historically low and inflation expectations still relatively stable.
Yet under the hood, a wealth divide that had subsided somewhat in the early stages of the pandemic era has suddenly grown more stark: The upper echelons of America’s income distribution — those making roughly $153,000 in annual income — are the ones that are now powering much of the spending driving U.S. growth.
Meanwhile, Americans who are not at the top are facing increasing financial difficulties.
The upshot is that the U.S. economy may be exposed to a more acute downturn if prices of the most highly valued assets, like stocks, homes and cryptocurrencies, take a turn for the worse.
“The fact that consumer spending is so concentrated among folks who are well-to-do makes the economy vulnerable,” said Mark Zandi, chief economist of Moody’s Analytics.
Many households in lower income brackets — approximately $73,000 and below — still likely have a job, and their wages have, on a broad average, largely kept pace with inflation. Yet most are unlikely to own the kinds of assets that have seen rapid appreciation in recent years, Zandi said.
“For the lower and lower-middle, it has been a struggle,” Zandi said.
Instead, he said, they’ve used credit cards to maintain purchasing power.
Yet the annual percentage rates on those cards have yet to sink below 20%.
“That’s tough to digest financially,” Zandi said. “So they’re having to continue to make some pretty tough choices.”
As a result, the share of overall consumer debt in delinquency is now at its highest level in nearly five years, according to data published by the Federal Reserve Bank of New York. Meanwhile, the share of credit card accounts showing delinquencies of at least 90 days overdue has climbed to more than 11%, the highest share since 2011 and a greater percentage than any time in the pandemic and post-pandemic era, the data showed.
It’s a similar story for the share of newly delinquent credit cards, which at about 9% are also back at highs not seen since 2011.
And the share of active credit card accounts making just the minimum payment is now at a 12-year high, according to data from Kansas City Federal Reserve.
While income divides have always been present in the U.S. economy, until the pandemic, the pace of spending growth had largely been consistent across all wealth brackets.
But about three years ago, according to a 2024 Federal Reserve report, higher-income households’ spending growth began to accelerate. The trend has persisted into this year, though it is starting to slow somewhat: Anecdotally, even households making above $100,000 — a level once considered privileged — are increasingly turning to options like Walmart to meet spending needs.
Still, the wealthiest U.S. consumers continue to pull away: The most recent data from the FICO credit reporting group shows the share of individuals with credit scores of 750 or greater is at record highs, while the share with scores of less than 600 has begun to creep back up after years of declines.
“Missed payments on bankcards … have grown to the point that they are now higher than pre-pandemic levels,” Can Arkali, FICO’s senior director for scores and predictive analytics, wrote last fall. “Faced with ongoing economic uncertainty, rising interest rates, and elevated consumer prices, people continue to heavily rely on credit cards for everyday expenses. This can weigh on people — especially those who are already financially distressed — and lead to higher credit card utilization and subsequent defaults on credit card payments.”
Nonprime borrowers, who now number in the millions, are facing particular distress.
“For this segment of the credit population, both payment default and debt levels have been increasing at a higher rate than the trends observed on the total FICO Score population and are now well over pre-pandemic levels,” Arkali wrote.
Despite the worrisome trends, there is no sign of an imminent crisis.
“I’d say I feel cautious optimism,” said David Sojka, senior adviser at Equifax, noting that growth in delinquencies has actually slowed. “Consumers are being more judicious in their spending and utilization rates — they’re managing how they’re spending relative to their means.”
But the trends are clear.
“Credit card performance is showing signs of consumer stress,” economists with the Philadelphia Federal Reserve wrote last month, adding: “Consumers are not only spending more, leading to higher balances, but paying off less, increasing revolving amounts.”
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