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U.S. consumers are pulling back on spending due to persistent inflation and growing concerns about the broader economic outlook, according to consumer financial services company Synchrony Financial SYF. Max Axler, the company’s chief credit officer, told Reuters thatpurchase volumes have declined across the industry as individuals, regardless of income level, become more selective about their spending habits.
While consumers' finances remain generally stable, they are accumulating more debt, and delinquencies on auto loans, credit cards and home credit lines are gradually increasing. The Federal Reserve flagged this trend last month, and analysts are closely watching spending patterns for early signs of financial strain.
Consumer confidence has weakened, and with inflation expectations climbing, people are becoming more cautious with their money. Synchrony has observed that while most customers are still managing to meet their loan payments, there is a noticeable shift in spending behavior. Retail giants such as Target Corporation TGT and Walmarthave echoed similar concerns, noting that consumers are delaying purchases, waiting for discounts, or opting for lower-cost alternatives.
Some economists are warning that concerns over potential inflationary effects from President Donald Trump's tariffs could hinder economic growth. The reduction in household spending could be an early signal of rising late payments and potential loan defaults, according to industry analysts. While default rates remain steady for now, the slowdown in consumer spending is being closely monitored.
Additionally, borrowers may become more conservative in taking on new loans, affecting banks that rely on loan growth as a key revenue driver. HSBC analyst Saul Martinez highlighted that industry-wide loan growth slowed by 5-12% in February compared to the previous year. If this trend continues, banks could face declining net interest income and lower overall revenue.
Financial stocks have already taken a hit. Over the past month, shares of companies like American Express Company AXP, Capital One Financial Corporation COF, Synchrony and Discover have witnessed declines, reflecting investor concerns over consumer financial health.
Price Performance – SYF, AXP, COF, Discover, Industry & S&P 500
Image Source: Zacks Investment Research
Return of Student Loan Delinquencies
Another looming issue is the resumption of federal student loan delinquencies. For the first time in five years, student loan servicers began reporting delinquencies to credit bureaus in mid-February. These delinquencies, dating back to October 2024, will continue appearing on credit reports through May 2025. This could further strain consumers who are already managing high levels of debt.