Podcast Summary
Consumer sentiment in the US economy shows signs of strain despite positive economic indicators: Median household savings decreased and debt levels increased, indicating financial strain for many individuals despite overall economic health
Despite positive economic indicators such as tapering inflation and low unemployment, consumer sentiment in the US economy is starting to show signs of strain. Economist Peter Ganong explains that during the pandemic, the median household saw a significant increase in their bank account balances due to increased income and decreased spending. However, the past few years have been about gradually working through this financial cushion and returning to normal. Three signs of where consumers may be struggling include rising debt levels, declining savings rates, and increasing anxiety about retirement. These trends suggest that despite the overall economic health, many individuals are feeling the pinch and may be facing financial challenges.
Rising credit card balances and delinquency rates signal financial stress: People are facing a squeeze on their purchasing power due to inflation and slower income growth, leading to increased borrowing and higher credit card balances. However, delinquency rates have surpassed pre-pandemic levels, suggesting financial stress for some consumers.
Despite having larger bank account balances, people are facing a squeeze due to inflation eroding their purchasing power and slower income growth. As a result, spending growth may slow down or people could increase their borrowing. Credit card balances have reached an all-time high of $1.1 trillion in Q4 of 2023, with delinquency rates exceeding 6% and surpassing pre-pandemic levels. The Federal Reserve's interest rate hikes led to a significant increase in credit card rates, making it more challenging for those with delinquent accounts to pay off their debts. While rising credit card balances could indicate optimism, the uptick in delinquency rates is a concerning sign of financial stress.
Consumers facing financial strain as credit card delinquencies rise and SNAP benefits decrease: Reduction in SNAP benefits and rising credit card delinquencies among younger and lower income households are putting financial pressure on consumers, leading to tough choices about food and potential reliance on food banks.
Data from the New York Fed indicating increased credit card delinquencies among younger and lower income households, coupled with falling sales at discount retailers like Family Dollar, signals that consumers are feeling the financial pinch. The reduction in SNAP benefits, which provided extra food assistance during the pandemic, has resulted in households losing up to $250 a month, forcing them to make tough choices about food. The closure of 1,000 Family Dollar and Dollar Tree stores this year and in the coming years could further limit options for these shoppers, potentially leading to longer travel distances to shop or increased reliance on food banks. This is particularly concerning in rural communities where dollar stores may be the only accessible grocery option.
Rising credit card delinquencies, sales at dollar stores, and retirement account withdrawals indicate economic pressure on consumers during the pandemic.: Despite increasing signs of financial stress among consumers during the pandemic, economist Peter Ganong advises caution in interpreting these trends due to changes in employment and retirement policies.
The economic pressure on consumers during the pandemic is becoming increasingly evident, as indicated by rising credit card delinquencies, increased sales at dollar stores, and a record number of hardship withdrawals from retirement accounts. While these signs are concerning, economist Peter Ganong cautions that the context of these changes is important to consider. With more employers automatically enrolling workers in 401k plans and easier access to hardship withdrawals, the increasing rate of withdrawals may not be as clear-cut an indicator of financial stress as it once was. Nonetheless, these trends suggest that some consumers, particularly those at the economic margins, are feeling the pinch. If you have other warning signs or personal observations to share, please write to us at indicator@mpr.org. The Indicator is a production of NPR.
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