Strong consumer spending is powering the U.S. economy, but one group appears ‘vulnerable,’ some experts say
Though corporate leaders have been talking up the strength of the American consumer in recent earnings reports, there are signs that one group is falling behind: people with lower credit scores.
In recent earnings reports, corporate leaders have said that consumers overall appear resilient, and the latest GDP numbers show that consumer spending was potent in the third quarter. But some CEOs have also alluded recently to signs of stress among consumers with lower credit scores. FICO refers to Fair Isaac Corporation, the company that created a credit-scoring model used by many lenders.
Government stimulus payments and fewer opportunities to spend during the pandemic led to American households saving larger than usual amounts of money in 2020 and 2021, but this “excess savings” is now mostly gone, and many low-income families have gone back to living paycheck to paycheck, economists have found. However, households with annual incomes of $150,000 and up do still have extra money to spend, Fraser mentioned in the earnings call.
Banks have tightened up credit access in the past year or so, which could make it even harder for consumers with lower credit scores to make large purchases, Sockin told MarketWatch. And among younger workers, those who have student debt but didn’t finish college could be even more vulnerable to disruptions in the economy, analysts said. Those workers do not have a college degree to help them access a job that offers higher income, but they have debts to pay off. “You have the debts without the benefits,” said Matt Schulz, chief credit analyst at LendingTree.
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