Earnings Season Commentary Points to Pressures for Lower-Income Consumers

Earnings season is less than two weeks old. By and large, the data and the press releases indicate that consumers are still spending, on experiences especially, and are using their cards to do so.

But here and there, management commentary and some metrics on loans have pointed to the pressures that lower-income consumers have been facing.

We may be moving toward a deepening bifurcation within the economy, where those making more than $50,000 are able to keep pedaling, as it were, in the paycheck-to-paycheck economy. And for those households below that income level, well, the challenges of keeping up with increased debt loads, while inflation’s still entrenched have been taking a toll.

As reported here, during Discover Financial’s earnings call on Thursday (April 18), CFO John Greene said in his prepared remarks that card sales were down 1% compared to the prior year quarter.

“Sales slowed across categories with the largest decline occurring in the everyday category, which includes supermarkets, gas, and wholesale clubs,” he said.

“While we continue to add new accounts, in general, we are seeing card members spend less, particularly among lower income households, which are most impacted by the cumulative effects of inflation,” the executive said. “Based on trends in the period, we expect sales to be flat to slightly negative this year.”

Elsewhere, during Citigroup’s earnings, CEO Jane Fraser stated that Citi is seeing “healthy spend growth … in branded cards, primarily driven by our more affluent customers. Across both portfolios, Increased demand for credit continues to drive strong growth in interest earning balances.” But “while they’re only a small part of our portfolio, we are keeping an eye on the customers in the lower FICO band,” she said.

Things to Get Worse?

As noted by Reuters, Chicago Federal Reserve Bank President Austan Goolsbee said, “If the delinquency rate of consumer loans starts rising, that is often a leading indicator things are about to get worse.”

The banks themselves have been notching rising delinquency rates — where those delinquencies on the cards have been coming off of lows. PYMNTS reported in its coverage of JPMorgan’s latest results that net charge-offs tied to its card services segment stood at 3.3%, up from 2.1% a year ago. Bank of America reported that the credit card loss rate in the latest quarter stood at 3.6% compared to about 3.1% at the end of 2023.

There’s evidence, too, that the cash cushions that would otherwise help support at least some spending and even help pay down debt are seeing some drawdowns, too.

Bank of America’s earnings supplementals show that core consumer deposits were down 3% quarter over quarter.  JPMorgan reported that average deposits, on the consumer side, were down 1% quarter over quarter and 7% year on year.

PYMNTS Intelligence reported at the end of last year that nearly 60% of credit cards are held by cardholders who live paycheck to paycheck, and 17% are held by paycheck-to-paycheck consumers with issues paying monthly bills. As for the income brackets: 77% of consumers earning less than $50,000 annually lived paycheck to paycheck.

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