Citigroup CEO Jane Fraser has noted a change in purchasing behavior among lower-income consumers as their bank balances shrink. The third-largest U.S. bank has closely monitored its credit card customers for signs of financial strain. Fraser mentioned in an interview that the bank is paying particular attention to consumers with lower FICO scores, where signs of financial stress are evident. She highlighted that the excess savings accumulated during the Covid pandemic are dwindling for these consumers. During the pandemic, the U.S. government injected trillions of dollars into households and businesses to prevent an economic catastrophe. However, the Federal Reserve’s aggressive interest rate hikes have increased the cost of credit cards, mortgages, and auto debt, leading to a rise in late payments and defaults. This financial strain is being felt by lower-end consumers.
Besides concerns about artificial intelligence and labor market tightness, Fraser mentioned that corporate leaders share their observations of softening demand, especially among lower-income consumers. This group is noticeably shifting its spending patterns towards lower categories in an effort to save money. She emphasized that while the consumer base is resilient, there is a softening trend. The softening demand may assist the Federal Reserve in its efforts to combat inflation. Fraser indicated that while employment and gross domestic product figures suggest a potential “soft landing” for the economy, any recession that does occur is likely to be manageable. In the interview, Fraser discussed the recent restructuring of Citigroup, highlighting a move from the traditional “financial supermarket” model towards a more streamlined operation. The upcoming fourth-quarter earnings report will reveal details regarding job cuts and cost savings resulting from the reorganization.
