Credit-card and auto delinquencies have been edging higher all year. Does that finally dent consumption in the U.S., U.K., and euro area—or does resilient income and still-elevated savings keep tills ringing into the holidays?
Snapshot: Three economies, one question
- U.S.: Household debt and revolving credit have climbed, with serious delinquency rates ticking up in some categories even as wage growth outpaces headline inflation. (Federal Reserve Bank of New York, Bureau of Labor Statistics)
- U.K.: Inflation has re-accelerated from last autumn’s lows and remains above pay growth’s downtrend, but the Bank of England is easing and lenders report more unsecured credit availability. (Office for National Statistics, Bank of England)
- Euro area: Households are still saving at unusually high rates, which supports balance sheets but restrains spending; inflation has steadied at ~2%, wage growth is cooling. (European Commission, European Central Bank)
Bottom line: Consumers aren’t flashing major stress signals in aggregate, but pockets of strain—especially subprime card and auto—are widening. That mix sets up a more selective holiday season, with value retail likely favored over discretionary splurges.
U.S.: Balances up, some fraying at the edges
Debt & delinquencies. The New York Fed’s latest Household Debt and Credit report shows total household liabilities continuing to edge higher. Transition rates into serious delinquency (90+ days) were stable to slightly higher across major categories in Q2, with a sharper rise in student loans as repayments normalize. Mortgage and HELOC delinquencies also nudged up. (Federal Reserve Bank of New York)
Under the hood, the weak link remains auto credit—particularly subprime. Fitch notes subprime auto 60-day delinquencies hit historic peaks around the turn of the year, staying elevated in early 2025 as high vehicle and insurance costs bite. (Fitch Ratings, Axios)
Cards and revolving credit. Revolving balances remain near records, per the Fed’s G.19 release, and private data show a larger share of bank-card debt now sits with subprime borrowers (22.1% as of May), up notably from 2021. That composition shift can amplify late-cycle sensitivity to income shocks. (Federal Reserve, Equifax Inc.)
Income, prices, and jobs. The July Employment Situation showed average hourly earnings rising 0.3% month-over-month (3.9% y/y)—still running ahead of headline CPI at 2.7% y/y in June, with core at 2.9%. Wage growth cushioning real incomes is one reason the consumer picture hasn’t cracked despite higher rates and tariffs. (Bureau of Labor Statistics)
Excess savings: largely spent. The San Francisco Fed’s work indicates pandemic “excess savings” were effectively drawn down by 2024, meaning current spending is more dependent on ongoing income and credit than on leftover buffers. (Federal Reserve Bank of San Francisco)
Retail read-through. Big-box signals are mixed but not dire. Value-oriented clubs continue to post solid comps (Costco July sales +8.5% y/y; e-commerce +15.1%), suggesting shoppers are trading down and seeking value baskets even as overall volumes hold up. (investor.costco.com)
Interpretation: U.S. consumption should slow, not stall—with elevated stress concentrated in lower-income cohorts using BNPL and subprime credit. Policymakers will watch whether delinquencies leak into prime segments. CFPB work shows heavy BNPL use among borrowers already carrying high balances—another point of vulnerability into the holidays. (Consumer Financial Protection Bureau)
U.K.: Inflation sticky, credit a bit easier, and households still cautious
Prices vs. pay. U.K. CPI accelerated to 3.6% y/y in June, while regular pay growth slowed to ~5.2% in the Feb–Apr period. Real wages are positive but narrowing, and the BoE sees disinflation progressing only gradually. (Office for National Statistics)
Monetary stance & credit supply. The BoE trimmed Bank Rate to 4.0% in August. In Q2, lenders reported increased availability of both secured and unsecured credit, longer interest-free card periods, and unchanged default rates—a supportive backdrop for near-term spending. (The Scottish Sun, Bank of England)
Savings cushion. The U.K. household saving ratio slipped to 10.9% in Q1, still above pre-pandemic norms. That helps service debt but also dampens discretionary outlays—a theme echoed in the BoE’s latest Monetary Policy Report, which assumes a gradual fall in the saving ratio to support consumption. (Office for National Statistics, Bank of England)
Arrears & housing. Fresh industry data show mortgage arrears improving off recent highs, aided by rate cuts and refinancing, though pressure remains on renters and lower-income households. (Yahoo Finance)
BNPL watch. The U.K. has set a path to bring BNPL (now termed Deferred Payment Credit) under full FCA oversight from July 2026; consultative proposals launched in July flag affordability checks and stronger borrower protections—timely safeguards heading into the festive season. (FCA)
Interpretation: The U.K. consumer is cautiously resilient. Softer inflation later in 2025, marginally easier credit, and a still-healthy (if eroding) savings buffer should stabilize spending—but retailers leaning on value, own-label, and promotions are best positioned.
Euro area: High savings, steady inflation, and a careful consumer
Inflation & wages. Eurostat’s flash shows HICP at 2.0% in July, stable on June. The ECB’s wage tracker points to negotiated wages slowing to ~2.9% in 2025, easing pressure on firms and underpinning real income gains. (European Commission, European Central Bank)
Savings and consumption. The household saving rate is still elevated (15.4% in Q1), and ECB analysis links that to caution about job security and slower goods consumption—a pattern that curbs the impulse to splurge even as real incomes improve. (European Commission, Reuters)
Credit quality. Bank asset quality remains solid, but IFRS 9 Stage 2 loans (heightened risk) have increased, with supervisors flagging household exposures as an area to watch. That argues for gradual, not rapid, acceleration in consumer lending. (European Banking Authority)
Interpretation: The euro-area consumer is steady but selective. Expect continued preference for value retailers and experiences over durables, with upside tied to wage disinflation translating into real purchasing power through year-end.
Cohort stress: Subprime vs. prime
Across regions, stress is not evenly distributed:
- U.S. subprime auto: 60-day delinquencies near record territory early in 2025; repossessions are rising from low bases. Prime remains contained. (Fitch Ratings, Axios)
- U.S. cards: Subprime now accounts for a larger share of bank-card balances, increasing sensitivity to shocks even if prime performance holds up. (Equifax Inc.)
- BNPL: Heavier use among borrowers with multiple loans and high revolving balances—late fees and rollovers are a growing risk flag. U.K. regulation will tighten from 2026. (Consumer Financial Protection Bureau, FCA)
Retail earnings hints: Value beats flash
Earnings and sales updates suggest a value-seeking consumer:
- Costco: July net sales +8.5% y/y; online sales +15.1%. Traffic remains healthy as shoppers look for price/quantity value. (investor.costco.com)
- European grocers (Carrefour): H1 updates highlight lingering purchasing-power pressure despite slowing inflation—another nod to cautious baskets and private-label strength. (carrefour.com)
- U.S. discretionary: Select chains have cited tariff uncertainty and softer discretionary demand in outlooks—consistent with trading down and delayed big-ticket purchases. (Investopedia)
Holiday-season set-up (U.S./U.K./EU)
What supports spending:
- Real wage growth (U.S. ~3.9% y/y in July; euro area wages decelerating but still positive in real terms; U.K. regular pay ~5.2% y/y against CPI 3.6%). (Bureau of Labor Statistics, European Central Bank, Office for National Statistics)
- Easing policy (BoE cuts; ECB and Fed expectations leaning easier if data cooperate), plus lenders signaling easier unsecured credit in the U.K. (The Scottish Sun, Bank of England)
What restrains spending:
- Composition shift toward riskier borrowers in U.S. cards; elevated subprime auto stress. (Equifax Inc., Fitch Ratings)
- High saving rates in the euro area and a still-cautious U.K. consumer; Stage 2 credit upticks at EU banks. (European Commission, European Banking Authority)
- Tariff-related price noise that may pressure discretionary categories. (Barron’s)
Net take: Expect healthy but value-focused holiday demand. Essentials, warehouse clubs, and promotional events should outperform; discretionary and big-ticket may lag unless discounting deepens.
Risk signals to monitor (now through November)
- Delinquency drift:
- U.S. 90+ day transition rates in the NY Fed report; watch if stabilization gives way to an uptrend in prime segments. (Federal Reserve Bank of New York)
- Subprime auto 60+ from Fitch’s Auto ABS indices for signs of renewed stress post-summer. (Fitch Ratings)
- BNPL usage & arrears:
- CFPB surveillance on BNPL cohorts and late-fee incidence; U.K. FCA consultation milestones into autumn. (Consumer Financial Protection Bureau, FCA)
- Income vs. prices:
- U.S. CPI (July) on Aug 12; track wage-price gap via BLS and PCE. (Bureau of Labor Statistics)
- U.K. CPI and ONS earnings updates to confirm real-income traction. (Office for National Statistics)
- Euro area HICP final and ECB wage trackers for services-inflation glide path. (European Commission, European Central Bank)
- Retailer guidance:
- Club and value chains’ monthly sales (e.g., Costco) as high-frequency reads on traffic and trade-downs. (investor.costco.com)
- Europe’s credit pulse:
- EBA risk dashboards (NPLs, Stage 2 shares) and ECB Bank Lending Survey for any tightening into year-end. (European Banking Authority, European Central Bank)
The call from here
Consumers in the U.S., U.K., and euro area still have spending power, but it’s increasingly channelled into value, supported by modest real-income gains and (in Europe) still-elevated savings. The risks are asymmetric: stress is concentrated in subprime cohorts, BNPL heavy-users, and auto borrowers facing higher operating costs. If those pressures broaden—or if tariffs push up prices—holiday demand could disappoint at the margin. Conversely, if wage growth stays near current run-rates and inflation recedes on schedule, the season may look solid but sensible rather than exuberant.
Sources (selected)
- U.S. household debt & delinquencies: Federal Reserve Bank of New York, Household Debt and Credit Report (Q2 2025). (Federal Reserve Bank of New York)
- U.S. wages & CPI: BLS Employment Situation (July 2025); CPI (June 2025). (Bureau of Labor Statistics)
- U.S. credit mix & subprime stress: Equifax National Market Pulse (Jul 30, 2025); Fitch auto ABS updates. (Equifax Inc., Fitch Ratings)
- U.K. inflation & pay: ONS CPI (June 2025); ONS AWE (June 2025); BoE Credit Conditions Survey (Q2 2025). (Office for National Statistics, Bank of England)
- Euro area inflation, wages, savings: Eurostat HICP flash (July 2025); ECB wage tracker; Eurostat saving rate (Q1 2025). (European Commission, European Central Bank)
- Retail pulse: Costco July sales release; tariff commentary in corporate earnings coverage. (investor.costco.com, Barron’s)
Reader checklist (non-advice)
- Track your debt-service ratio (monthly payments ÷ after-tax income).
- If you use BNPL, set automatic reminders and avoid stacking multiple plans. Review lender disclosures and late-fee terms. (Consumer Financial Protection Bureau)
- Build (or rebuild) a cash buffer—UK and euro-area households still save more than pre-pandemic; the U.S. no longer has “excess savings” to fall back on. (European Commission, Federal Reserve Bank of San Francisco)
Disclosure
The information above is for general informational and educational purposes only and does not constitute investment, financial, or other professional advice. Markets and economic data change quickly; please verify all facts and figures directly from the cited sources before making decisions. Bull Baba (bullbaba.com) is not a registered investment adviser and does not recommend buying, selling, or holding any security or financial product. If you need personal advice, consider consulting a qualified professional.