A Tale of Two Recoveries: The K-Shaped Path of U.S. Consumer Resilience

The strength of the US consumer is often questioned. With the average consumer grappling with inflation and tightening financial conditions over the last few years, headlines now permeate with tariff and macro uncertainty. However, based on our analysis of both proprietary internal Chase data and asset-backed security (ABS) performance data, we continue to believe that the US consumer population remains resolute overall but that a K-shaped recovery continues to lie underneath the surface. Because of this, security selection remains ever important when investing in consumer credit.

Based on our analysis of proprietary Chase data, bank balances exhibit signs of stabilization. The decreases in bank balances seen in 2022 as inflation began spiking have plateaued, and we are now seeing account balances largely flat on a year over year basis across the income spectrum.

Chase customer data also reveals consumer spending continuing to grow at a healthy pace overall. Though pockets of lower income consumers remain pressured, those with higher credit scores¹ appear to be demonstrating more resiliency.

The ABS market, which securitizes various forms of consumer debt, also serves as an important barometer of consumer health. Over 2024, we have seen performance improvement in the ABS market, after a weaker 2022 and 2023. Issuers in the space have tightened their credit boxes and adapted their underwriting for the new inflationary environment and access to credit has become more difficult for non-prime consumers.

Beyond credit tightening, we also see that some consumers continue to be “over-levered” across the income and credit score spectrum. Some lenders focusing on prime consumers across both auto loans and unsecured consumer loans have shown deteriorating performance vs. their peers, highlighting the risk of high debt burdens for consumers and adverse selection potential for certain issuers, like fintech consumer lenders.

Even after controlling for FICO (Fair Issac Corporation) scores, meaningful performance differences between issuers remain, indicating evidence of adverse selection. Origination channel, underwriting and servicing can all impact loan performance for similar looking borrower metrics.

While ABS performance revealed the K-shaped dynamic in the consumer population through the widening in prime/non-prime credit outcomes, Chase data and broader data sets now corroborate it as well.

Before the onset of Covid, spending growth was broadly similar across income groups. However, as we emerged from the pandemic, spending by the higher income cohort has vastly outpaced that of other groups, with the gap continuing to widen:

Credit card payment behaviors in the US population also indicate this. We are at all-time highs for both consumers paying off their credit cards in full every month and consumers only making their minimum payment. It is important to note that the growth in consumers making full payments has outpaced those making minimum payments, highlighting the manner in which higher income cohorts continue to drive aggregate consumer strength.

While the consumer continues to exhibit resilience overall, the situation is nuanced and more complex than headlines suggest. With idiosyncratic risks continuing to cause disparate impacts across the population, leveraging alternative consumer datasets, such as our internal Chase data, to dissect the nuance will be the key towards generating alpha through our ABS security selection.

¹Chase customers skew towards higher credit scores.

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