Tighter lending standards in the wake of stress in the U.S. banking industry will weigh on consumer spending, says Fitch Ratings.
In a new report, the rating agency said inflation has already weakened consumer confidence, and that an expected slowdown in consumer spending will be intensified by tighter financial conditions.
Fitch reported that real income growth remains “relatively weak” and that, in 2022, consumer net worth declined for the first time since 2009.
Net worth was down by 2.9% year over year, “mostly due to broad-based declines in the financial markets,” it said.
Additionally, households are continuing to deplete the excess savings built up during the pandemic.
Fitch estimated that excess savings are now down by 52% from their peak of US$2.2 trillion in August 2021.
“Consumer spending support from savings will likely be extinguished by [the fourth quarter],” it said.
And after rebounding last year, credit card balances are now largely back to pre-pandemic levels, it noted.
“While real consumer spending was relatively strong during [the first quarter], increasing at an annualized rate of 3.7%, it was on the back of unsustainably strong motor vehicle sales in January,” said Olu Sonola, head of U.S. regional economics at Fitch.
“This robust quarterly growth rate masks back-to-back monthly declines in February and March due to stagnant services spending growth and declines in goods spending,” he said. “Housing spending — almost 20% of total spending — will continue to be a headwind.”