As the 2024 US election draws nearer, economic indicators suggest that American consumers are increasingly feeling the pressure of financial strain. This trend is largely attributed to the tariffs imposed by the Trump administration on various imports, which raises concerns about one of the most significant aspects of the US economy: consumer spending.

In a recent report, JPMorgan disclosed that the proportion of loans in its credit card division classified as unrecoverable has surged to a level not seen in 13 years. This alarming statistic reflects a broader industry trend, where the rate of charge-offs has exceeded pre-pandemic levels. During the height of the COVID-19 pandemic, consumers benefited from government stimulus packages that led to an increase in credit card payments. However, the current financial landscape paints a different picture.

Consumer spending, which is often referred to as the cornerstone of the US economy, has shown signs of waning strength after a prolonged period of robust growth. This decline raises significant concerns about economic stability, especially as rising prices and escalating interest rates loom. Financial experts warn that the US economy might be on the brink of a recession within the next year if these trends continue.

Jamie Dimon, the CEO of JPMorgan, expressed a cautious outlook, noting that theres a wide range of potential outcomes amid the prevailing uncertainties. He aligned with the banks economists who estimate that the likelihood of a recession stands at a precarious 50/50.

Concerns are further amplified by anticipated price hikes stemming from President Trumps proposal to implement a 10 percent tariff on imports, alongside a staggering 145 percent tariff on goods imported from China. Jeremy Barnum, JPMorgans Chief Financial Officer, highlighted a potential front loading of spending in April, as consumers rushed to purchase items expected to increase in price due to these tariffs.

Recent figures from the University of Michigan indicate a substantial decline in US consumer sentiment since December, driven by escalating fears surrounding the trade war. A preliminary poll revealed that the percentage of respondents anticipating rising unemployment in the coming year reached its highest point since 2009, signaling growing concern among consumers.

Additionally, data from Placer.aian analytics company that tracks mobile location signalssuggests that shoppers flocked to budget-friendly warehouse club stores in late March. This trend indicates that consumers might be preparing for price increases by stockpiling essential goods. In a statement, John David Rainey, the Chief Financial Officer of Walmart, the largest retailer in the US, noted an increase in sales volatility, emphasizing that changing consumer sentiment is influencing purchasing behavior.

Despite these fluctuations, Walmart maintains a positive outlook, projecting a 3-4 percent growth in US net sales for the quarter ending in April. Meanwhile, a report from the Philadelphia branch of the Federal Reserve revealed that the proportion of US credit card borrowers making only the minimum payments hit a 12-year high by the end of 2024. Furthermore, the percentage of credit card accounts delinquent by 30, 60, or 90 days has also risen, indicating increased stress among consumers.

The Philadelphia Fed highlighted that these trends, combined with record high revolving card balances, suggest growing consumer pressure. Nevertheless, Barnum of JPMorgan adopted a more optimistic tone regarding consumer credit, stating that the bank's data aligns with the idea that consumers are generally managing their financial obligations. He acknowledged that lower-income consumers have weaker cash buffers but are not exhibiting significant signs of distress.

This sentiment is echoed by Wells Fargo, the fourth-largest bank in the US by assets, which reported a decrease in its net charge-off rate this quarter. Despite having a smaller credit card portfolio than JPMorgan, Wells Fargo noted that customer activity remained stable, with consistent spending observed in both credit and debit card transactions. Mike Santomassimo, the Chief Financial Officer of Wells, remarked on the resilience of their customers during this challenging period.

Dimon pointed out that the unemployment rate, currently around 4.2 percent, will be a critical factor influencing loan losses. Credit almost always relates to employment, he explained, urging observers to monitor unemployment trends closely, as fluctuations in unemployment may directly impact credit quality. As the economic landscape continues to shift, these factors will play a crucial role in shaping the future of consumer spending and, by extension, the overall health of the US economy.

Additional insights were provided by Akila Quinio.