UBS Explains Who’s Most At Risk In The Next Consumer Deleveraging Cycle

In their 2Q 2017 survey, UBS found that, for the first time since at least 2014, the trajectory of financial health of low-income households has started to diverge from that of more affluent households. Per the graph below from UBS’ credit strategy team led by Matthew Mish, while a firming job market has helped households making over $100,000 feel more confident about covering their monthly expenses, spiraling debt balances has left low-income families even more vulnerable to the slightest monthly surprises with 70% reporting that their income just barely covers monthly expenses.
Overall US consumers report a lower likelihood of defaulting on a loan payment in the next year (15% vs. 17% in Q1), but lower income households cited an increase in their default probability (13% vs 9% in Q1). Other responses suggest consumers are incrementally more confident in their ability to pay given labor market stability, but optimism on the outlook is moderating. However, replies from lower income households paint a pessimistic outlook, partly due to lackluster real wage growth, higher financing rates and highly regressive policy.

This post was published at Zero Hedge on Jul 18, 2017.