A new York (CNN Business) Is there already a recession in the American economy? Politicians, investors, economists, and central bankers are all engaged in a discussion over this. But one thing is certain: Some consumers, particularly those who are less well off, are starting to experience difficulty making their payments on time.
This week’s results from telecom providers and credit card companies underscored that cautionary sign.
The two largest issuers of credit cards, Discover (DFS) and Capital One (COF), both missed analysts’ forecasts for their quarterly earnings on Thursday, and their prices fell as a result.
Both banks increased their reserves for potential loan losses as a precautionary measure because they were concerned about how the economy would develop in the next months. Delinquency rates increased somewhat.
There are numerous macro elements at work. Rate increases by the Federal Reserve, intended to attempt and control prices, will take some time to have the desired impact because inflation is still out of control. Furthermore, higher rates may eventually cause the economy to slow down.
Increased costs and interest rates
“Price inflation and increased interest rates are the main challenges facing consumers today. Additionally, inflation could reduce the surplus savings that customers have built up as a result of the epidemic, particularly if price hikes continue to outpace wage growth “Richard Fairbank, CEO of Capital One, stated during the company’s results conference call on Thursday.
The cost for consumers to pay interest on their monthly payments will also probably “push up” as a result of higher rates, Fairbank continued.
In its earnings report on Thursday, AT&T (T) noted that monthly bill payments from cellphone consumers are moving more slowly.
On a conference call with analysts on Thursday, AT&T CEO John Stankey said, “We’re seeing an increase in bad debt to slightly greater than pre-pandemic levels as well as delayed cash collection cycles.”
Stankey pointed out that AT&T officials “still think customers will pay their bills, although somewhat later.” At&T is “not, in any way, frightened by this,” Chief Financial Officer Pascal Desroches assured analysts.
Its competitor Verizon (VZ) released earnings on Friday and reduced its projection for the year, which caused shares to drop by 6%. Verizon notices some of its customers beginning to feel the pinch, just like AT&T.
“Weakened consumer wireless volumes are what we’re witnessing. It is evident that the inflationary climate has an impact on customer behavior “during a conference call with analysts, Verizon CEO Hans Vestberg remarked.
Budgets for consumers are getting tighter, he said.
In light of this, Verizon just unveiled Welcome Unlimited, a less expensive monthly phone package that “will suit the needs of budget-conscious consumers,” according to Vestberg.
Consumers with more money aren’t necessarily making cuts.
Nevertheless, despite the fact that two of the largest credit card firms and two telecom behemoths have acknowledged the increased pressure on regular American consumers, one business that focuses on high net worth individuals is still doing well.
American Express (AXP) disclosed earnings on Friday that above expectations, and the news caused its stock to increase by more than 4%.
A “strong comeback” in travel and entertainment expenditure levels benefited AmEx, according to CEO Stephen Squeri, who also noted that spending in both categories first exceeded pre-pandemic levels in April.
The credit performance of the corporation “remains extraordinary, with delinquencies and write-offs around historical lows,” according to Squeri.
Nevertheless, AmEx also increased its credit reserve slightly throughout the quarter. The company is closely monitoring labor-market data, according to Squeri, who also noted that there is a link between “people losing their employment and not being able to pay their bills,” during a conference call with analysts.
So that might become a problem later, he said.
However, AmEx may be in a far better position than other businesses because its clients are frequently wealthier. Squeri was direct in his reaction when an analyst during the conference call questioned him about why AmEx cardholders could behave differently from the typical shopper.
“I believe the solution is straightforward: They have more money.”
Monica, P. R. L. (2022, July 22). Recession warning: Some Americans are having trouble paying bills. CNN. Retrieved July 23, 2022, from edition.cnn.com/2022/07/22/investing/consumer-spending-credit-cards-wireless/index.html