Top-Tier Troubles Ahead
While the overall US consumer debt delinquency rate remains lower for upper-income households compared to other groups, a notable and concerning trend has emerged: delinquencies across all loan products for households earning over $150,000 per year have more than doubled since 2023. This is a significantly sharper increase than for middle- or lower-income households, suggesting that even those with substantial earnings are beginning to feel the pinch of economic shifts. Despite this acceleration, the actual delinquency rate for this group remains relatively low at around 0.34%, but the rapid upward trajectory is a red flag, indicating that a broader segment of the population might be struggling with rising costs and potentially stagnant real wage growth.
This strain on upper-income consumers comes at a time when consumer spending, which accounts for roughly two-thirds of US GDP, has seen its tamest growth in consecutive quarters since the pandemic. In the second quarter of 2025, consumer spending rose by a modest 1.4%, a deceleration from previous periods. While the overall US GDP did rebound to a 3.0% annual rate in Q2 2025 after a Q1 contraction, this was significantly influenced by a decrease in imports and an acceleration in consumer spending on durable goods and services. However, a deeper look reveals that "real final sales to private domestic purchasers" – a measure stripping out trade and government spending – increased by a more subdued 1.2% in Q2, down from 1.9% in Q1.
This subdued consumer spending growth, coupled with the rising delinquencies among higher earners, points to a potential underlying fragility in the US economy. While overall job growth has continued and consumer confidence saw a slight improvement in June, there are signals of caution. The deceleration in personal consumption expenditures and the increasing financial strain on a segment of the usually more resilient upper-income bracket suggest that consumers may be reaching a breaking point after a sustained period of high spending and rising debt. This could lead to a further slowdown in the vital consumer spending engine, impacting future GDP growth, and prompting a re-evaluation of the economic outlook.
Separately, as expected, the FOMC maintained the fed funds rate target range at 4.25-4.50% yesterday. The decision was not unanimous, with two members, Waller and Bowman, dissenting in favour of a 25bps cut, suggesting a growing dovish sentiment within the committee. Futures markets are forecasting one rate cut this year, amid a cooling labour market and restrictive current rates. However, these anticipated cuts could be delayed into 2026. We await the Fed’s favoured PCE readings, and the personal income and spending figures this afternoon.
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