The economic picture in America is growing increasingly complex, as new data shows even higher-income households are starting to fall behind on their debt payments. According to a recent report from The Wall Street Journal, delinquency rates are ticking up across mortgages, auto loans, and credit cards - signaling that the financial cushion many families built up during the pandemic is quickly eroding.
Uneven Impacts Across Incomes
What this really means is that the economic recovery has been anything but uniform. While top-earning households continue to see their wealth grow through asset appreciation, those on the lower end of the income spectrum are being squeezed by stubbornly high inflation and a slowing labor market.
Reuters reports that mortgage delinquencies are spiking fastest in lower-income areas and regions with weakening job markets and housing conditions. Meanwhile, data from the New York Federal Reserve shows overall delinquency rates rising, but still at relatively low historical levels.
Implications for the Broader Economy
The bigger picture here is that consumer spending - which drives two-thirds of U.S. economic growth - is increasingly relying on shaky financial footing. As higher-income families start to pull back, it could spell trouble for retailers, automakers, and other industries that have come to depend on the spending power of the affluent.
And with the Federal Reserve continuing to raise interest rates to combat inflation, the burden on indebted households is only likely to grow. As economists at the American Economic Association have noted, persistently low fertility rates and an aging population mean the U.S. may struggle to maintain its standard of living in the long run.
The uneven nature of this slowdown is the real cause for concern. It suggests fundamental imbalances in the economy that go beyond the typical business cycle. Policymakers will need to grapple with these structural challenges if they hope to engineer a soft landing and avoid a more severe downturn.