LIVE MARKETS-Debt at $18.6 trillion, but the real story is a bifurcated consumer economy - WFII

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DEBT AT $18.6 TRILLION, BUT THE REAL STORY IS A BIFURCATED CONSUMER ECONOMY - WFII

Recent headlines have focused on U.S. consumer debt reaching an all-time high of $18.6 trillion, with credit card debt topping $1.2 trillion.

However, comparing the current level of consumer debt to an appropriate benchmark rather than looking at the absolute level in a vacuum helps get a better view of what these numbers really mean, said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute (WFII).

While debt levels are at records, the household debt-to-disposable income ratio sits just below 90%, near its lowest point in 25 years, Wren said.

For perspective, this ratio peaked at 135% in 2007, right before the global financial crisis. In other words, consumers overall are not as stretched as the raw numbers suggest. However, the consumer economy is bifurcated, he added.

High-income earners continue to spend, while lower-income households face headwinds. Inflation has eroded their buying power, and affordability has become a major concern. These households spend most of their income on essentials, leaving little for discretionary purchases.

Mortgage debt remains manageable, and credit card delinquencies have only risen modestly, Wren said, adding that younger borrowers and those at the lower end of the income scale are feeling the most strain.

Still, Wells Fargo expects tax refunds next spring to support spending and sees broader economic improvement through 2026, driven by AI-related investments and deregulation.

(Joel Jose)

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