Citi analysts believe the US consumer is strong, but say cracks are emerging.
“The US consumer has kept economic growth resilient over the past year in the face of high inflation and tightening monetary policy.” With labor markets tight, excess savings sizable, and debt levels and defaults well controlled, consumers overall are “still in a strong position,” analysts wrote.
However, they noted that the resilient overall picture “hides significant vulnerabilities in the household sector”.
“For example, the bottom 40% of households account for around 10% of income and more than 20% of consumption and tend to have high debt burdens,” the analysts said. he added.
“These dynamics put low-income consumers more at risk of defaulting and spending declines as the economy weakens and interest rates continue to remain high.”
Analysts believe signs of strain are beginning to emerge in this group as credit card debt and subprime defaults rise.,
“If weakness in the low-income consumer persists, widens and worsens, it will have significant implications for economic growth and financial stability.”