💳 Consumption & Income: Resilience on the Surface, Stress Beneath

At first glance, the U.S. consumer appears unstoppable. Income is rising, consumption is robust, and retail sales are climbing. But under the surface, warning signs are emerging that hint at mounting financial strain.

🟢 Nominal Strength: A Post-COVID Revival

The 1-year data paints a picture of strength across the household sector:

• Personal Income (PI) continues its steady upward march.
• Personal Consumption Expenditures (PCE) and Retail Sales have shown sustained growth, albeit with a recent leveling.
• Inflation (CPI), while still rising, has moderated compared to its 2021–22 peak.

These metrics suggest consumers are still spending and earning — a bullish signal. The post-pandemic recovery, fiscal support, and wage growth have helped many Americans get back on their feet. It’s a story of return to normalcy and renewed optimism.

Figure 2: Consumption & Income – 5-Year View

⚠️ Cracks in the Foundation: Rising Delinquencies

Yet one chart breaks the bullish narrative: Loan Delinquencies. While the rate has recently plateaued, it has climbed significantly over the last two years — and remains elevated.

Recent headlines add weight to this concern:

• Credit card delinquencies have surged, particularly among lower-income borrowers. Some areas have seen over a 60% increase in serious delinquencies since 2021.
• Student loan defaults are back with force as repayment resumes, dragging down credit scores and pushing many into subprime territory.
• Overall consumer credit delinquencies have hit a five-year high, according to New York Fed and Federal Reserve data.

These trends indicate that a segment of the population is under real stress, despite headline growth numbers.

Figure 1: Consumption & Income – 1-Year View

🧐 Interpreting the Disconnect: A Tale of Two Consumers

We may be witnessing a bifurcation:

• Financially secure households are still spending and driving much of the growth.
• Financially vulnerable households are falling behind on debt payments, likely squeezed by inflation, interest rates, and wage lag.

There’s a possibility that we’re seeing a reversion to the long-term average delinquency rate — that the riskiest borrowers have already defaulted and exited the credit system. If so, the recent plateau could represent a stabilizing point, not a warning of worse to come.

Figure 3: Consumption & Income – 180-Day View

🛍️ Where Does That Leave Us?

Despite rising delinquencies, the broader picture still shows a resilient consumer:

• Incomes are rising.
• Spending continues.
• Inflation is not accelerating.

However, underlying risks remain, particularly among lower-income and over-leveraged households. Policymakers and markets should not ignore these fault lines, as they could expand if labor conditions weaken or credit tightens further.

📌 Bottom Line

“The U.S. consumer is still standing — but not without a limp.”

The engine of consumption is running, but signs of overheating and wear are beginning to show. As long as inflation remains contained and incomes continue rising, the story stays optimistic. But this is no time for complacency.

🔹 Final Note

Zooming out to the long-term picture, FRED data shows that current delinquency rates on consumer loans remain below historical averages. While elevated compared to pandemic-era lows, today’s levels are still modest by past standards. This could suggest that the financial system has absorbed the riskiest borrowers already — and what we’re seeing now may be a return to normal, rather than a signal of systemic distress. In that context, the consumer’s strength looks even more impressive and may reflect broad confidence in the economy’s trajectory.

📊 View the full FRED chart: Delinquency Rate on Credit Card Loans (FRED)