“Collectively, these trends, along with a new series high for revolving card balances, indicate greater consumer stress,” Philly Fed analysts Jeremy Cohn and Brandon Goldstein wrote.
“So you’re seeing kind of the normal rotation,” he told Fortune. “Investment spending drops. Labor market weakens up. Consumers spend less.”
Still, people likely won’t cut back astronomically, he said, even in a recession. After all, if more Americans are struggling to pay off their entire balance, it means they are still buying.
“Usually what we say is that consumers consume just like woodchucks chuck wood,” said Hatfield, who manages ETFs and a series of hedge funds.
“What we mean by that is that they’re extremely resilient,” he added. “The low end has to spend money, and the high end wants to spend money and can spend money.”
One example is credit access. The Philly Fed found firms gave the 90th percentile of borrowers their third-largest boost to card limits over the last 12 years. For the 50th percentile, however, card limits stayed level at an average of $5,000, a contraction in real terms due to inflation. A similar trend has played out with mortgages, with the 90th percentile of loans on bank balance sheets growing twice as fast as the median since the final quarter of 2019.
“A huge part of society, they didn’t benefit from that inflation,” Hatfield said. “They got hammered by it.”
“It is going to put further pressure on low-income consumers, put the U.S. economy further at risk, and could eventually lead to a recession,” Hatfield said.
The White House did not respond to Fortune’s request for comment.
