Are US Consumers Starting To Crack? Pessimism, Loan Defaults, Bargain-Hunting Rise

Americans have been dealing with the rising costs of housing, groceries and transportation for years. A slew of new data suggests the formerly resilient U.S. consumer may be starting to crack.

What To Know: The latest report from Fitch Ratings showed a growing number of people are unable to keep up with their car loan payments with 6.6% of subprime auto borrowers more than 60 days behind, marking the highest level since the data began being tracked in 1994.

Additionally, a recent report from the Federal Reserve Bank of New York revealed the number of auto loans moving into serious delinquency — defined as being 90 days or more past due — increased to 3%, marking the highest level since 2010.

Another indicator is the Consumer Confidence Board Consumer Confidence Index which fell sharply by seven points in February, indicating pessimism about current and future economic conditions.

"In February, consumer confidence registered the largest monthly decline since August 2021," said Stephanie Guichard, senior economist, Global Indicators at The Conference Board.

"This is the third consecutive month-on-month decline, bringing the Index to the bottom of the range that has prevailed since 2022, Guichard added.

American households are running out of emergency funds which could be contributing to the bleaker financial outlooks. Data from the Federal Reserve shows that households' ability to come up with $2,000 for an emergency expense within the next month is at the lowest level since the survey started in 2015.

"Taking into account that the CPI level today is 35% higher than in 2015, the situation is even worse," said Dr. Torsten Slok, chief economist for Apollo Global Management.

What Else: Retailers are reporting demand is slowing, with Kohl's Corp. KSS CEO Ashley Buchanan saying last week that customers making less than $100,000 are now feeling squeezed.

Many Dollar General Corp. DG customers "only have enough money for the basic essentials," said CEO Todd Vasos. Meanwhile, sales among higher-income shoppers have picked up as bargain-hunting intensifies.

Stocks To Watch: Major companies in the retail, automotive and hospitality sectors should be monitored as the health of the U.S. consumer begins to show signs of weakness.

The Consumer Discretionary Select Sector SPDR Fund XLY is an ETF focused on consumer discretionary stocks with Amazon.com, Inc. AMZN, Tesla, Inc. TSLA and The Home Depot, Inc. HD as its top three holdings.

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