"Why Isn't the U.S. Economy Collapsing When Everyone Feels the Strain?... More Americans Can't Pay Credit Cards, Yet Resilience Persists"

Despite Rising Delinquency Rates and Weakening Consumer Sentiment, U.S. Economy Grows
Asset Markets Supported by AI Investment
Slower Recognition of Insolvency Than Before...Interest Rate Uncertainty Remains

Contrasting scenes are unfolding simultaneously in the U.S. economy. While a considerable number of indicators suggest that economic sentiment is already approaching recessionary levels, U.S. gross domestic product (GDP) has rebounded, and the market capitalization of S&P 500 companies is nearing a historically high valuation zone. Analysts note that, rather than consumption, corporate investment is supporting the economy, with capital still flowing heavily into investments led by artificial intelligence (AI).

On the 27th, Hana Securities provided this assessment of the current U.S. economy. The delinquency rate on U.S. credit card loans has surpassed 13%, approaching its highest level since the financial crisis. Bankruptcies among small and medium-sized businesses and the deterioration of consumer sentiment are also continuing. In terms of economic sentiment, there are quite a few areas that are already close to recession. Nevertheless, U.S. GDP grew by 2.0% year-on-year in the first quarter of this year, rebounding from the previous quarter. The S&P 500 has also maintained a high level. The market capitalization of the S&P 500 is close to a historically high valuation compared to GDP. Large AI technology stocks appear to be driving the market trends.

Changed Consumption Structure: Polarization

Hana Securities highlighted the changed consumption structure as the reason the U.S. economy and asset markets have remained resilient. Currently, the top 10% of U.S. households own about 87.5% of U.S. equities and account for approximately 67.5% of total wealth. The benefits from rising asset prices are therefore concentrated among the upper class. In contrast, the lower class is directly exposed to burdens from credit card loans, auto loans, and housing costs.

Youngjoo Lee, a researcher at Hana Securities, noted that the influence of the upper class on U.S. consumption has grown much larger than in the past. Lee explained, "Even if consumption among lower-income groups slows, as long as upper-income consumption is sustained by the wealth effect of rising financial assets, total consumption and GDP are less likely to collapse than one might expect," adding, "The U.S. economy is shifting from a structure where everyone needs to thrive simultaneously to one where consumption by asset holders supports the economy."

AI Investment Supporting the U.S. Economy

Hana Securities also concluded that the main driver of the U.S. economy has shifted from consumption to corporate investment, especially in AI infrastructure. In the first quarter of this year, U.S. non-residential fixed investment increased by about 5.7% year-on-year, contributing approximately 1.38 percentage points to GDP growth. In particular, investment in computers and related equipment, centered on data centers, servers, and network equipment, rose 73% from a year earlier and about 149% since the end of 2022.

The expansion of capital expenditures by big tech companies is simultaneously stimulating the semiconductor, power, industrial goods, and network equipment industries. While the U.S. economy in the past was driven by broad-based consumption and a recovering housing market, it is now shifting toward a structure where AI-focused capital investment is sustaining the growth rate.

A Market Recognizing Risks More Slowly Than in the Past

In addition, the market is recognizing risks much more slowly than in the past. In the private credit market, borrowers with limited capacity are increasingly turning to PIK (payment-in-kind) arrangements and extending maturities to reduce the burden of cash interest payments. While this was a method used by some borrowers in the low interest rate environment following the COVID-19 pandemic, it is now on the rise again.

The commercial real estate market is experiencing a similar process. The delinquency rate on office collateralized mortgage-backed securities (CMBS) has risen from the pre-pandemic level of 1-2% to about 12% this year. Some office assets have already experienced significant price adjustments over several years, but the market as a whole has not yet recognized and resolved losses all at once. With declining transaction volumes, banks are opting for maturity extensions and restructuring rather than immediately selling off assets. The burden of refinancing is continuing to accumulate. Lee pointed out, "Commercial real estate distress is still ongoing, and the recognition of losses is also taking place over a prolonged period," adding, "The market is not in a state without problems; rather, losses and burdens are being spread out over a long time."

Continuation of AI Investment Is the Key

Ultimately, what matters most to the U.S. market is not just the short-term slowdown in consumption. The key questions are whether AI investment can continue, whether refinancing is possible even in a high interest rate environment, and whether asset prices can be maintained.

Lee explained, "Although economic sentiment is slowing, capital is still pouring into the U.S. asset market. The U.S. economy is shifting from an 'overall economic' structure to one centered on 'assets, investment, and credit platforms,'" adding, "To understand the current market, it is necessary to look at which sectors are continuously absorbing liquidity and capital to support the economy."

This content was produced with the assistance of AI translation services.