Consumer Spending Remains Strong Despite Elevated Inflation

Consumer spending has remained strong despite elevated inflation, surprising many economists. However, there are concerns about credit card delinquencies and lenders’ net charge-offs, which could indicate whether consumers can keep up with their payments. The Philadelphia Fed reported that balanced-based credit card delinquencies in Q1 2024 reached their highest level since 2012.

According to Seeking Alpha, in June, credit card delinquencies stayed stable at 2.79%, higher than pre-pandemic levels. Net charge-offs declined in June, but banks report that the growth in delinquencies and charge-offs is slowing.

Despite these concerns, U.S. retail sales for June remained flat, which was better than expected. Coresight Research founder and CEO Deborah Weinswig told Yahoo Finance that consumers are still spending, but there is less optimism for the future. However, there are potential interest rate cuts on the horizon, which could impact the retail sector.

As PYMNTS reported, the resilience of consumer spending is also reflected in J.P. Morgan’s latest results, which showed strong card spend in both debit and credit payments. Credit card loans were up 13% year on year, and debit and credit card sales volumes were up 7%. J.P. Morgan CFO Jeremy Barnum stated that there has been little impact from spending shifts in an inflationary environment.

However, credit card delinquency rates have reached a nearly 12-year high. The share of credit card balances that are past due is at its highest level since 2012, indicating that people are struggling to pay off their credit card debt. This is despite many consumers trimming their spending. The New York Federal Reserve also reported rising delinquency rates for credit cards and auto loans across age groups.

Mortgage delinquencies have also increased, reaching a six-month high in June. However, this surge is attributed to the calendar rather than borrower distress. The national delinquency rate rose 14.5% in June from the previous month.

Overall, while consumer spending remains resilient, there are concerns about credit card delinquencies and mortgage delinquencies. These indicators suggest that some consumers are struggling to keep up with their debt payments, despite strong retail sales and spending trends.