Despite High Delinquency Rates, Americans Keep Spending... Why U.S. Consumption Holds Up [Weekend Money]

High-Income Consumers Drive Both Essential and Luxury Spending
"Focus on Employment and Asset Trends, Not Just Delinquency Rates"

Warning signs are flashing for U.S. households. Credit card and auto loan delinquency rates have climbed to levels seen during the financial crisis, and the personal savings rate has dropped to its lowest point in nearly four years. Nevertheless, consumer spending is not slowing down easily. In the second quarter, the U.S. real gross domestic product (GDP) growth rate slowed to an annualized 1.5% compared to the previous quarter, but the personal consumption growth rate accelerated to 3.4%.

Hana Securities, in a recent report, identified employment and the asset effect as key factors behind this divergence. Even if job growth slows, as long as jobs are maintained, household income will continue to flow in. In addition, high housing prices and rising stock prices support asset values, and accumulated savings, net home equity, and credit-based loans are supplementing households' spending power.

In particular, high-income earners are leading consumption. According to the Federal Reserve Bank of Atlanta, from 2021 to 2025, the top 20% income bracket saw an average annual total consumption growth of 12.6%, far outpacing the 3.9% growth in the bottom 20%. For essential goods, the annual consumption growth for the top 20% was 13.7%, compared to just 2.9% for the bottom 20%—a clear gap. This is why the recent strength in U.S. consumption cannot simply be explained by inflation.

The same trend is evident in corporate earnings. Walmart gained market share across all income groups, with the influx of high-income customers being particularly notable. Youngjoo Lee, a researcher at Hana Securities, explained, "This is less about high-income earners simply 'trading down' to cheaper channels, and more about an increase in essential spending and the trend of these consumers favoring retail channels that offer price competitiveness, a wide product selection, and convenient delivery."

Consumer spending is not limited to discount channels. Off-price spending at TJ Maxx (where surplus or overstocked goods are sold at deep discounts, a consumption pattern typical of recessions) remained solid, while spending by American Express cardholders and Delta Air Lines’ premium revenue also saw strong growth. Lee noted, "High-income consumers are spending more across a wide array of categories, including essential goods, discount retail, and premium travel."

However, spending on big-ticket and deferrable items remains weak. Lowe’s saw sluggish demand for discretionary DIY (Do-It-Yourself) projects among general consumers, and Home Depot's growth was limited mainly to small-scale projects. Weakness in home transactions is limiting consumer spending associated with moving, such as furniture, appliances, and large-scale remodeling.

Ultimately, experts say current U.S. consumption is characterized by the coexistence of high delinquency rates and resilient spending. Lee explained, "In the past, rising delinquency rates were used as a gauge for growing household financial stress and a harbinger of a future slowdown in consumption. But now, the households experiencing higher debt burdens and those driving consumption growth are not the same groups." She continued, "Rather than judging overall consumption trends solely by delinquency rates, it’s important to monitor employment, which determines the income of the consumer-driving group, as well as the trends in housing and financial assets these households predominantly hold."

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