American Express said on Friday (October 21) that it had set aside more money than expected for delinquent loans, another red flag for the health of American consumers.
According to its third quarter results reportthe credit card company’s consolidated provisions for credit losses were $778 million, compared with a profit of $191 million posted by American Express a year ago.
“The change reflects a reserve build of $387 million, primarily driven by growth in lending to card members and changes in macroeconomic forecasts, compared to a reserve release of $393 million a year ago.” , says the report.
Earlier this month, PYMNTS reported that the loan loss reserves of the six largest U.S. banks are expected to rise for the third straight month by $4.5 billion.
Bank reserves that were boosted to help soften the blow of loan losses from COVID-19 have largely been avoided thanks to the influx of stimulus funds. But with demand for loans reaching a high, banks are preparing for the possibility that an increase in interest rates will translate into credit losses.
The news comes as inflation continues to eat away at household budgets, reducing people’s earning capacity. As PYMNTS recently noted, this has led consumers to cut back and seek discounts, in some cases on lower-quality products.
At least 70 million American consumers believe the recession has already started, according to the “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening” report, a PYMNTS study based on a panel of 2,632 American consumers.
Nearly 9 in 10 consumers said their incomes were not growing fast enough to keep up with inflation. These consumers are more likely to cut back on non-essential spending, switch to cheaper merchants, and buy lower-quality items to accommodate this “universal pay cut.”
A large portion of consumers who saw their income decline, stay the same, or grow less than inflation were among those who cut back on non-essential spending. Among consumers whose incomes have fallen, just over half have switched to lower quality products.
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