Inflation Has Consumers in a Recession State of Mind, Yet Optimism about Finances Hits Highest Level in Six Quarters - Seite 2

Consumer Credit Health Down, But Not Worrisome

As consumers send mixed messages about the economy, TransUnion’s proprietary gauge on consumer credit health trends – the Credit Industry Indicator (CII) – posits a slight decline occurring in the credit markets. The CII decreased to 110 in Q1 2023, down from 113 the previous quarter and 116 one year earlier, though the overall level indicates that credit markets remain relatively healthy.

The CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors, and credit performance metrics over time into a single indicator.

Lower levels for the CII generally indicate a decline in the overall health of the consumer credit market. However, the fluctuations in the metric are low, especially compared to larger swings observed during recent crises, such as the onset of the pandemic when the CII dropped from 113 in Q1 2020 to 55 in Q2 2020.

“The CII has been weighed down recently by cooling credit demand and a drop in supply by lenders. Yet, the declines we have observed are not concerning, and levels indicate the consumer credit market remains on solid footing,” added Wise.

Optimism Highest Among Younger Generations

Part of the reason concern levels are not high: consumers’ optimism about their household finances in the next 12 months is high. Gen Z (73%) and Millennials (69%) are most optimistic about their finances, especially compared to Gen X (51%) and Baby Boomers (41%).

More than half of Americans (51%) expect their income to rise in the next 12 months compared to 41% in Q1, led by Millennials and Gen Z. These generations expect their income to rise in the next year, 68% and 66%, respectively, compared to 46% for Gen X and 27% for Baby Boomers.

“A foundation for weathering a challenging macro environment, where costs of everyday items are up and interest rates are rising, is to be gainfully employed,” concluded Wise. “Employed consumers are far better able to make payments on debts they may have and to spend on both discretionary and non-discretionary items, both vital for the health of the U.S. economy. While the employment situation has remained strong for quite a while, it will be one of the metrics we follow most closely in coming months to gauge the future outlook for the U.S. consumer.”