Booming luxury travel and a jump in ‘relief’ loans – NBC 6 South Florida

  • Consumers face a different reality depending on income level, suggesting the possibility of a K-shaped economic recovery after the pandemic.
  • Some brands focused on lower-income consumers have taken a hit as a result, while brands that cater to more affluent customers appear to continue to do well.
  • This creates an ambiguous picture of the national economy that could have implications for everyone, from the Federal Reserve to ordinary Americans.

in American ExpressConsumers continue to open high-fee credit cards and spend on luxuries like travel. But to the lending company cockyThere is strong interest in small loans as cash-strapped Americans try to get by.

This juxtaposition highlights the growing picture of bifurcation between income groups in America. It adds to a growing popular view that the United States is in crisis K-shaped recovery. Since the end of the pandemic, that’s where upper-income classes are reaping the most benefits, and where lower-income Americans are faltering or falling behind.

It has created a confusing picture for the US economy that could affect everything from how the Federal Reserve moves interest rates to who Americans vote for in November. Moreover, some worry that it will threaten the surprisingly resilient economy that has been a global marvel. This comes at a unique moment, as consumers were against relying on debt, and many of them began to crack.

“Our customers are doing really well,” American Express CFO Christophe Le Caillecq told CNBC last month, pointing to spending on flights and dining out. “They are definitely enjoying life.”

The typical American Express consumer is wealthy and shows every sign of being ahead in the face of stubborn inflation and persistent economic uncertainty. More than 3 million new credit cards — which sometimes carry annual fees costing hundreds of dollars — were issued last quarter. U.S. cardholders as a whole spent 8% more in the last three-month period.

First-quarter airline spending on American Express cards rose 9% compared to the previous quarter, underscoring the continued willingness to pay for experiences. First-class travel showed particular strength, although management noted that this could partly be linked to the return of business travel. This may also be a good sign for white collar staff as it shows companies are willing to spend on travel again.

But behavior among some junior clients paints a different picture of the same economy. The company on Tuesday announced an 80% increase in loans up to $2,500 during the first quarter. The “relief loans,” as management calls them, have been used to cover expenses like rent and other regular bills, according to senior product manager Blair Lanier.

People who get these loans are likely to be low-income people with nothing more than a high school diploma, Lanier said. The company said some may turn to these smaller loans after being rejected for larger amounts by other lenders, but Upstart has also made changes to its automatic approval processes. (These loans are fixed-fee products with an annual percentage rate of up to 36%).

“The last two years have been a unique, specific and unusual macroeconomic event,” Lanier said. “I’m not surprised that there is currently so much demand for a product like this and that this demand will now be visible.”

The underclass is struggling

Americans, like those who turn to Upstart’s microloans, are succumbing to mounting financial pressures.

The end of fiscal stimulus in the Covid era alongside Resume student loan payments Savings accumulated early in the pandemic have been depleted. Rising gas costs can be especially painful for those who don’t have remote work privileges. On the other hand, high-income consumers may also feel emboldened House prices rise And strength in the stock market.

Low-income families represent a large segment of the country’s population, which could help explain the widespread economic sentiment we are seeing. University of Michigan Consumer Confidence Index decreased more than 12% between April and May alone as consumers’ expectations for future inflation rose, according to data released on Friday. While the index came in well below economists’ expectations, it was still well above where it was at the same time the previous year.

Some economists were at a loss to explain the change in the closely watched poll, but it comes at a time when many have seen money dry up on a rainy day. Excessive saving among Americans It peaked above $2 trillion In August 2021, according to data analyzed by the Federal Reserve Bank of San Francisco. But this filling was completely exhausted in the following years as financial pressures mounted, with US household debt now totaling $72 billion, as of March.

At the same time, the costs of a variety of goods and services rose. Although the pace of inflation has slowed from the multi-decade highs seen in recent years, prices continue to rise at a rate Faster rate What monetary policy makers consider healthy for the economy.

Given these factors, economists were puzzled by the continuing tendency to spend. But the consumer slowdown is long overdue Finally appear In a range of household brands, especially those frequented by lower income groups.

McDonald’s She said she is adopting a “street fighter mentality” and “laser focused” on value after prices rise Push him away Diners with less to spend. Soda and snack product PepsiCo He admitted that low-income Americans are “extended.”

Frozen chicken products from Tyson Foods.

Daniel Acker | Bloomberg | Getty Images

Frozen chicken products from Tyson Foods.

Frozen food maker Tyson Foods It has seen consumers shift to dining at home more than quick service restaurants provide it. Lower tax brackets in particular have turned to special labels from the Tyson name brand when grocery shopping, the administration said.

This is part of a trend known as “trading down” which could indicate that consumers are tightening their financial constraints. Market data provider Adobe Analytics has I’ve seen this behavior online Over the past four months across many categories, including personal care, electronics, apparel, furniture and grocery.

Furniture e-commerce platform Wayfair He said sales of expensive goods were particularly weak. Tool maker Stanley Black & Decker He lamented soft consumerism trends and interest in do-it-yourself projects.

A hot job market and rising wages have been cited as a source of optimism among this consumer base, despite growing uncertainty elsewhere. But last month Shockingly weak jobs report And a The last jump Unemployment claims could throw some cold water on one of the last reasons low-income Americans feel good about the economy.

“We are seeing a more cautious low-income consumer.” Citigroup CEO Jane Fraser Tell CNBC’s Sarah Eisen this week. “They are feeling more pressure from the cost of living, which has been high and increasing for them. So, even though they have jobs, their debt service levels are higher than they were before.”

Fraser is one of many business leaders and economists who point to the “K” shape of consumer habits. In this environment, the upper class continues to spend, while those less well off now grapple with rising prices and interest rates.

In other words, middle- and upper-income consumers are “optimistic,” while lower-income consumer confidence is in “recession territory,” according to Nancy Lazar, global chief economist at Piper Sandler. She said that this contradiction could shatter hopes for A “soft landing” It is a target outcome where inflation is tamed without pushing the economy into a period of prolonged deflation.

It’s also important to remember that low-income Americans were feeling financial pressures before the pandemic, said Tyler Schipper, an associate professor of economics at the University of St. Thomas in Minnesota. While the group has made up ground amid worker shortages, he said a return to more turmoil makes sense as the economy continues to reel from the shock of 2020.

“They started from a place of struggle,” Schipper said. “The idea that low-income workers are going to look for the best prices is, I think, in some sense a return to normalcy.”

Evidence of rate matching or trading down could be good news for the Fed, which is looking for signs that previous rate hikes had their intended effects of tightening the economy, Schipper said.

The upper class hums along

Top earners, even though they make up a smaller segment of the population, are still on the tear, and that can make a big difference for some companies.

Airlines have been racing for years to upgrade business class and premium economy cabins and expand lounges to accommodate bigger spenders. Delta Airlines Sales from those cabins have exceeded economy class, she said. Based in New York JetBlue Airlineswhich is much smaller than its main airline rivals, said this week it would reduce some flights to provide more business class seats on routes to the Caribbean.

Booking Holding Customers are not sacrificing higher-rated hotels or longer vacations, he said. Airbnb He has shown interest in traveling to events such as the Paris Olympics and the European Cup in Germany this summer.

Airbnb’s management has highlighted the thirst for experiences among its customers. In the same vein, parent Ticketmaster Long live the nation She said she doesn’t see “weakness” in demand.

Park chains Six flags And Cedar Gallery Both have seen stronger than expected attendance in recent quarters. Six Flags said the number of 2024 season tickets sold during April rose at a double-digit pace compared to the same period the previous year.

Guests ride a roller coaster at Six Flags Magic Mountain amusement park in Valencia, California, United States, on Saturday, November 4, 2023.

Eric Thayer | Bloomberg | Getty Images

Guests ride a roller coaster at Six Flags Magic Mountain amusement park in Valencia, California, United States, on Saturday, November 4, 2023.

Unlike Wayfair, Garmin It is seeing strong sales of its expensive products. The company pointed to the fact that its fitness segment revenues grew 40% from the same quarter in 2023, led by wearable technology.

“We’ve already seen a very strong response to some of our high-end products,” Garmin CEO Cliff Pemble told analysts earlier this month. “People are buying based on their needs, and we haven’t seen much evidence of mixing that we can point to with confidence.”

Where is the weakness?

This variation occurs even within sectors. Look no further Planet Fitness And life.

Planet Fitness, known for its memberships Starting from $10has seen a “shift in consumer focus” towards savings in 2024. For premium gym chain Life Time, clubs are running waiting lists and personal training Requests It is at record levels.

“I personally expected to see some weakness over the last 18 months, and I was wrong,” Lifetime CEO Bahram Akradi told analysts this month.

CNBC’s Kate Rooney, Amelia Lucas, Brandon Gomez, Robert Hom, Jeff Cox, Leslie Josephs and Hugh Soon contributed to this report.

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