Economic Signals and Strategic Imperatives
The June 2024 Market Pulse webinar gave our esteemed panelists the opportunity to share insights on the current state of consumer profiles and populations as well as how you can leverage that data to optimize your acquisition, origination, prescreen, and account management decisioning.
We were pleased to welcome back Dr. Robert Westcott, President and Founder of Keybridge, which has served global financial institutions, Fortune 500 companies, leading nonprofits and government agencies. We're also thrilled to welcome back Chris Wheat, President of JPMorganChase Institute. And, joining us from Equifax, Tom O'Neill, Risk Advisor, shared the latest U.S. consumer credit insights.
MACROECONOMIC UPDATE with Dr. Robert Wescott, President, Keybridge, LLC
Three main factors have been propelling the U.S. economy forward and making a soft landing more likely:
strong job growth,
open consumer wallets,
and strong increases in household wealth.
Unemployment has been at or below 4% for 28 straight months, the longest such stretch since the 1960s. Half of the 50 states have their lowest rates in history.1 Regions with the lowest unemployment include mountain states like North Dakota and South Dakota as well as northern New England, the southeast, Maryland, and Virginia.1 We're seeing a little bit of evidence of a cooling job market, but the labor market is still churning out jobs and creating the wherewithal for people to keep the economy going.1
A significant, but perhaps overlooked, factor bolstering the U.S. economy has been the $12 trillion increase in household wealth over the past year.2 This increase includes $9 trillion in stock market wealth and $3 trillion in housing wealth, according to recent Federal Reserve data.2 Additionally, the rise in stock market wealth contributes to a wealth effect where households feel richer and spend more. In the past year, consumer spending in the U.S. increased by $895 billion, with an estimated 65% of this growth attributed to the wealth effects from rising stock and housing values.2 However, this boost in spending could reverse if stock market values decline.
Despite plentiful employment opportunities, many people feel negative about the economy due to higher inflation and weaker real disposable income growth; consumer confidence has been stagnant, with inflation reducing the spending power of income. Over the last decade, real disposable income grew by an average of 2.7% annually before COVID-19, but in the past year, it increased by only about 1%.3 This limited income growth, combined with inflation, is causing financial strain, especially for households that do not own stocks. While wealthier households with stock investments feel better off, many others are experiencing economic stress.
Inflation-adjusted disposable personal income grew at 2.7% annually from 2015 to 2019 but has slowed to just 1% over the past 12 months, straining consumer finances.4 Evidence of financial stress includes significant increases in serious delinquencies for auto loans, particularly among Gen Zers and millennials.4 Delinquencies for car loans and credit cards are rising across all age groups, with younger adults showing the sharpest increases.4 Moreover, rising car prices are exacerbating financial strain for many households, especially younger ones.
Younger consumers are experiencing significant financial strain, particularly with increased risks of delinquency on auto loans and credit cards.5 The Census Bureau's Household Pulse Survey has shown a marked increase in households unable to pay utility bills in 2024, which is concerning and warrants monitoring.6 Overall, these indicators suggest consumers are feeling more economic pressure, signaling potential spending adjustments ahead.
The Federal Reserve is facing challenges in addressing inflation's "last mile" effects, especially concerning service sector inflation.7 While prices of goods have softened due to factors like lower gasoline prices and global economic weaknesses, service sector inflation remains sticky.7 Keybridge's "Top 45 to Watch" index, focusing on critical service sector inflation, shows a recent annual rate of increase of 3.9%, down from previous higher levels but still significant.7 The Federal Reserve continues to monitor this measure closely despite some recent moderation, indicating ongoing concerns about inflationary pressures in essential services such as utilities, medical services, and telecommunications.7
The Federal Reserve is observing a softening labor market, indicated by a decline in the “quit rate” and easing wage demands, especially among lower-wage workers.8 While the Federal Reserve acknowledges progress, they remain cautious as wage growth historically correlates with inflationary pressures.9 Despite recent improvements, the Fed believes further moderation in wage growth is needed.9 While rate cuts in 2024 remain possible, the likelihood of a cut this summer is now less than 50/50, with the Fed signaling only one cut likely through the rest of the year at its June Federal Open Market Committee (FOMC) meeting.10
GETTING A FULLER PICTURE OF CONSUMER DATA with Chris Wheat, President, JPMorganChase Institute
First, we focused on how using consumer checking and savings account data provides a microeconomic perspective on broader macroeconomic trends. By analyzing income growth by tracking real dollars entering consumer accounts, excluding items like withheld taxes, the 2019 to mid-2023 data show month-over-month income growth for millions of families.16 Despite overall growth since December 2019, the rate has been modest, especially factoring in post-pandemic stimulus periods.16 Notably, lower-income families show slightly higher growth rates compared to higher-income counterparts, highlighting income disparities.
After examining two-year income growth rates across different income groups, we see a period of higher wage growth prior to the pandemic compared to current trends. Before the pandemic, around 2019, the two-year growth rates were notably higher, exceeding 4.5% and even reaching over 5% for the lowest income group.16 These data points contrast with the lower growth rates observed in recent years, where annualized growth has been around 1.5% to barely 2% on average.16 The data suggest a tighter labor market previously contributed to higher income growth, especially benefiting lower-income groups more significantly.16
Cash balances held in checking and savings are a critical part of household wealth because these balances influence short-term spending behaviors as well as provide insights into economic trends. The data show that cash balances surged at the onset of the pandemic, declined afterward, and have since stabilized around levels higher than those observed in 2019, even when adjusted for inflation.16 This trend aligns with historical patterns of balance growth as families progress in their careers and income levels.16 The analysis suggests that while current balances reflect higher levels compared to pre-pandemic times, they are consistent with expected trends, prompting considerations about how past financial experiences shape current perceptions and behaviors.16
A significant trend exists in retail investing, specifically the movement of funds from checking accounts into retail brokerage platforms for independent investment purposes.16 There is a substantial increase in this behavior across various income groups, particularly among lower-income families, where the rate has quadrupled compared to previous periods.16 Additionally, the trend is notable among Black and Hispanic families, indicating increased engagement in investing.16 The data also show distinct periods of heightened activity, especially during specific months like March 2020 and January-February 2021, with significant interest from men and younger investors under 40 years old.16 These insights underscore an interesting evolution in financial behaviors, prompting further exploration into the implications and influences.
STAY IN THE KNOW
You can register for upcoming webinars, find our monthly Small Business Insights, and explore our National Consumer Credit Trends Reports on the Market Pulse homepage. All the Equifax data and insights presented on our Market Pulse webinars and this blog are pulled directly from these reports.
In today’s dynamic economic landscape, forward motion is not just a strategy. It's a commitment to your customers. Challenging financial times require proactive planning, goal setting, and relentless momentum. To stay on top of all our insights and updates:
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Sources:
Bureau of Labor Statistics, pulled June 2024
Federal Reserve, Flow of Funds, pulled June 13, 2024
Conference Board, University of Michigan, pulled June 2024
Bureau of Economic Analysis, Keybridge Calculations, pulled June 2024
Federal Reserve Bank of New York, pulled June 2024
Census Bureau Household Pulse Survey, pulled June 2024
Bureau of Labor Statistics, Keybridge Calculations, pulled June 2024
Bureau of Labor Statistics, Atlanta Fed, pulled June 2024
Atlanta Fed, pulled June 2024
CME Group, pulled June 2024
Equifax; Data are February YTD originations for each year in the series
Equifax U.S. National Consumer Credit Trends Originations Report - Published June 2024 - Originations through Feb 2024
Equifax U.S. National Consumer Credit Trends Portfolio Report - Published June 2024 - Data as of April 2024
Equifax Market Pulse Credit Trends; Data through April 2024
Equifax Credit Trends and IXI Data 2020-2023
JPMorganChase Institute
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