According to Jane Fraser, the chief executive officer of Citigroup, lower-income consumers have altered their spending habits to save money as their bank accounts shrink.
On Friday, Fraser told CNBC that the third-largest U.S. bank by assets has been monitoring its credit card customers for indicators of distress.
Fraser referred to the widely used Fair Isaac Corporation credit assessment system and said, “We are paying attention to the lower FICO consumers, where cracks are forming.” I believe some of the excess savings from the COVID years are about to dwindle.
To avert disaster, the U.S. government injected trillions of dollars into households and businesses during the COVID pandemic, money that has kept the economy functioning longer than many economists had predicted. Simultaneously, the Federal Reserve’s most aggressive interest rate hike cycle in four decades has increased the cost of credit cards, mortgages, and auto debt, while late payments and defaults have increased.
Fraser, when asked what other CEOs have told her about the state of the economy, stated that in addition to remarks on artificial intelligence and labour shortages, corporate executives have informed her that demand is weakening.
“Particularly [for] the bottom end of the consumer, that’s the one that we’re starting to see cracks, you’re seeing some shift in the buying patterns to lower categories in the spend,” Fraser said. “It’s a resilient consumer but it’s a softer one.”
The CEO remarked that a decline in demand could aid the Federal Reserve in its fight against inflation. While employment and GDP data suggest the economy will experience a “soft landing,” if it does enter a recession, it will likely be “manageable,” according to Fraser.
Fraser stated in the extensive interview that her most recent overhaul of the bank was a shift away from the “financial supermarket” model of the past and towards a more streamlined operation.
Fraser stated that the scope of employment losses and cost savings resulting from the reorganisation will be disclosed with fourth-quarter earnings.