Consumer spending has begun to decline among wealthy Americans, says American Express—a sign that the economy might be getting worse.
Key Details
- A Thursday quarterly earnings report from American Express shows that profits dropped 13% from $2.1 billion to $1.8 billion.
- The card issuer has been forced to increase its provisions, expecting that a large number of cardholders will be unable to make payments—the largest provision increase since COVID-19, Stansberry Research reports.
- Amex CFO Jeff Campbell remains optimistic about consumer spending remaining strong. He says its customers are proving resilient.
Why It’s Important
The ongoing weight of high inflation, high interest rates, tightening labor markets, and recession fears is having a negative impact on consumer spending. However, the economy has continued to operate strangely. Negative market forces have projected an impending recession due to the Federal Reserve’s monetary tightening policies of the past 13 months, but this has not yet come to pass. Entertainment and travel spending grew by $5 billion in the first quarter of this year, even as total goods spending decreased by $12 billion.
As we previously reported, consumer spending among the rich was high throughout last year. That has changed within the past two months as consumer spending continually declined for major purchases.
The economy is replete with inconsistent numbers at the moment—recording travel spending and banks collapsing from bond failures. The economy is in decline, and yet consumers feel very confident, and employees do not fear losing their jobs this year even as the job market slows. This could be an indicator of a soft landing, that the upcoming recession will be short and shallow.
It remains unclear if a recession will settle in. The Federal Reserve is momentarily reluctant to make dramatic decisions following the collapse of Silicon Valley Bank—which indicated that the Fed had possibly taken its rapid interest rate hikes too quickly. At the same time, improvements to inflation are slow, coming at 5% for the month of March.