Equifax Market Pulse: Current Economy Brings Financial Challenges and Hidden Opportunity

October 06, 2022

FINANCIAL STRESS IS RISING and spending habits are changing. According to recent data shared in the latest Equifax Market Pulse webinar, inflation, rising interest rates, and an uncertain employment market continue putting pressure on U.S. consumers. In case you missed it, read on to learn how these diverging economic scenarios are impacting businesses and consumers alike, and what measures can be taken to help them stay ahead of the curve.


Signs of Financial Strain Begin to Grow Across All Household Income Levels 

Across the board, U.S. consumers are beginning to feel the effects of an economy fraught with uncertainty. Even as the Fed sets forth efforts to fight inflation - and consumer sentiment drops to a sixty-year low - 40% of households say they are having a difficult or very difficult time paying expenses, compared to just 25% last summer. 

“Nearly 20% of American households with a combined income of over $100,000 are reporting having difficulty paying regular expenses,” said Dr. Robert Westcott, President and Founder of Keybridge. “There’s evidence that consumers across all income levels are starting to experience elevated levels of financial stress.”

For lower-income households (less than $50,000 annual income), 50-60% have also said they are struggling to cover regular expenses, including food, rent and transportation. And among middle-income households, 20% are saying they plan to use credit cards to pay their debts, with another 10% saying they may skip payments. 

As a result, consumer spending habits seem to be changing - data suggests reduced spending in dining, travel and vacation, and even those households with income over $100,000 say they plan to reduce their spending over the next year. At the same time, there’s increasing evidence that consumers are shopping around on day-to-day products to save money, with valuations of some name brand consumer products seeing lower sales as people opt for generic alternatives. 


Total Consumer Debt Increases as Reliance on Credit Cards and Personal Loans Rise

Though there’s been much ongoing debate as to whether a recession is already here, the current credit environment is still healthy with strong, low-risk originations growth seen through Q2

“While there's the view that we're not in the recession as a whole, there are consumers who are absolutely feeling that impact at a more granular level,” said Thomas Aliff, Risk Advisor Leader at Equifax.

As the Fed raised interest rates in hopes of combating inflation, the housing market has continued to decline from last year’s highs - three million first mortgages have originated today since May, a 51% decrease from the same year-to-date period in 2021. There has also been a decline in auto lending - about 15% decrease in total accounts and a 1.9% decrease in balances - over this time last year. 

Meanwhile, increases in credit card originations, spending limits and personal loan utilization may be another indicator of financial stress on consumers. Also in the same time period year-to-date since May, bank card credit limits originated reached $190.2 billion and bank card accounts originated reached 38.5 million, a 41% and 16% increase from the previous year, respectively. The total dollar amount of consumer finance personal loans has risen by about 36% from the prior year. Total consumer debt is now over 16.21 trillion - over 8% more than it was a year ago.


Current Economic Landscape Brings Hidden Opportunities for Lending

When considering how the current economy is affecting U.S. consumers, it’s important to understand nuances within the consumer base today - particularly with those seeking credit, such as personal loans and bank cards.

There are more than 70.7 million Americans with thin credit files or no credit history at all. By leveraging alternative data sources on top of traditional credit reports, lenders can help expand access to credit, while tapping a new, financially durable customer base that may have historically been overlooked. 

“Fair Credit Reporting Act-compliant information that's not included in traditional credit reporting data, such as income and employment information, has the potential to help responsibly expand consumer access to credit opportunities and therefore support a more inclusive economy, while creating a marketplace of financial inclusion,” said Shelly Nischbach, Vice President and Verification Sales Leader at Equifax Workforce Solutions.

To learn more on the latest Market Pulse Reports or upcoming webinars from Equifax, visit the link here.