Economic activity increased at a slight to moderate pace in eleven of twelve Federal Reserve districts in late May and June, but beneath the headline growth, the Fed’s latest Beige Book paints a picture of mounting financial stress among consumers that should have the attention of everyone in the accounts receivable management industry.
While commercial loan quality held stable, consumer loan quality ticked down nationally, and the district-level details tell the story. Bankers in the Kansas City district reported that roughly half of new auto loans they originate involve borrowers carrying negative equity from a trade-in. In the St. Louis district, one bank noted that loans to households with weaker credit continued to deteriorate, while a Mississippi community bank reported an increase in small-dollar lending to highly cash-constrained customers. Lenders in both the New York and Richmond districts flagged upticks in residential mortgage delinquencies.
The Atlanta Fed reported that growth in short-term personal loans and buy now, pay later financing pointed to ongoing household financial strain. In the San Francisco district, contacts observed faster spending of tax refunds and rising credit card balances. Boston-area nonprofits said lower-income consumers were adding credit card debt just to pay for essential goods.
The culprit, repeatedly, is inflation, and fuel prices in particular. Elevated gasoline prices were hurting workers’ budgets across the Minneapolis district, where one contact noted commuting costs were hitting rural workers especially hard. Districts across the country reported consumers trading down, buying less per trip, and pulling back on discretionary spending. A St. Louis social service nonprofit said meal demand jumped about 30 percent in two months, which it attributed to declining purchasing power and SNAP benefit reductions. A Dallas nonprofit reported food assistance demand had surpassed levels seen during the financial crisis and the pandemic.
The labor market offered a mixed counterweight. Employment rose on balance, with five districts reporting modest to solid gains, up from just one district in the prior report. But wage growth remained modest in most districts, and some Memphis employers told the St. Louis Fed they had not raised wages in three months despite rising employee requests. One Kansas City district employer noted workers were willing to change jobs for as little as a dollar more per hour, a sign of how tight household budgets have become.
For collectors and creditors, the takeaway is a consumer base that is still employed and still spending, but increasingly leveraged, increasingly price sensitive, and showing early-stage distress signals across auto, mortgage, credit card, and small-dollar portfolios. The report, compiled from data collected on or before July 6, arrives two weeks before the Fed’s next policy meeting, where elevated inflation has about half of policymakers projecting at least one rate hike by year end.
