AYESHA RASCOE, HOST:
The American economy is a consumer economy. These days, consumer spending accounts for around 70% of the gross domestic product. And what's GDP? It's the economic output of a nation - the added-up value of all the final goods and services a country produces at home. So while Wall Street makes its bets on potential profits on chip manufacturing or what the Federal Reserve plans to do about interest rates, we're going to take a look now at the economy's main driver.
Ted Rossman is a senior industry analyst at Bankrate, and he joins us now. Welcome to the program.
TED ROSSMAN: Good to be here. Thank you.
RASCOE: There's been a lot of attention lately on subprime borrowers - people with credit scores below 670 - falling behind on car payments. And a study by The Century Foundation, a liberal think tank, points to more people getting behind on utility bills, the same for people who have student loans. Are those red flags, in your opinion, or just kind of disparate stats in a big economy?
ROSSMAN: I would describe the situation as pockets of trouble. Overall, the economy's actually still in pretty good shape. We've yet to have the recession that so many have warned about the past few years. In general, GDP's growing. Unemployment's still pretty low on a historical basis. Consumers are still spending, sometimes because they have to because things cost more, and sometimes because they want to on discretionary items, like travel.
We are definitely seeing those pockets of trouble, though. It is alarming that subprime auto loan delinquencies are worse now than they were during the financial crisis. Anytime we say that about any sort of financial issue, that gets your attention. Student loan delinquencies are really elevated. About 1 in 4 federal student loan borrowers are either in default or close to it. There are, sadly, a lot of people struggling, but a big theme here is the so-called K-shaped economy. Basically, the rich get richer. The poor get poorer. There are a lot of people doing well and there are a lot of people struggling, and there are fewer in the middle. The overall economic numbers are pretty good, but they're propped up by a higher-income audience.
RASCOE: Do you have any sense of why you may have more people falling behind on car payments or why people are struggling with their student loans? Like, what is the pockets of trouble?
ROSSMAN: A lot of it comes back to the cumulative effects of inflation. It's not so much that prices have run away from us this year. It's when we zoom out and we say, well, if we go back to the start of 2021, on average, everything costs 25% more. And that's been a big strain on a lot of people. Most people's incomes have not kept pace. It's the high interest rates that are meant to bring inflation down but make it a lot more expensive to pay off your credit card, for instance, where we see near-record interest rates, significantly higher rates on auto loans and mortgages than we saw for most of the last 15 years. It's really all of these increases that have stacked up on people.
RASCOE: And so beyond subprime auto loans and light bills, are you seeing any other alarming numbers or trends in the economy as it is today?
ROSSMAN: There's very much an all-news-is-local element to this, and I don't mean specifically geographically. I mean more these various haves and have-nots. If - do you have credit card debt or not? That's a big distinction. We see a lot of those sort of divides across the economy. Do you have stock investments or not? It's roughly 60/40 in favor of having stocks. Well, stocks have been at record highs in recent months, and, you know, those people are feeling a lot better versus those who are not sharing in that. Home ownership is another one. It's a similar percentage. It's about two-thirds of Americans own their homes. Well, they're feeling a lot better than renters because many locked in these really low mortgage rates a few years ago. Their home price may be at or near a record level. It's just a lot easier than someone who's looking to enter the housing market and facing high mortgage rates and high prices. So there's a lot of that haves and have-nots playing out in different sectors.
RASCOE: Well, talk to me about that K-shaped economy. Let's dig in on that. Is this new and unprecedented, or is this, like, a new normal?
ROSSMAN: It's been around for a while, but it's getting worse. Moody's says that the top 10% of earners are accounting for 50% of all spending. That's an all-time high in a dataset that goes back to the late '80s. It is getting increasingly skewed towards the top, and it does seem that the gap is widening. And it's not just the super rich, either. I mean, we even see this trend on things like credit card debt. If you're lugging around the average credit card balance, which is around $6,500, according to TransUnion, if you're making minimum payments at 20% interest, you're in debt for about 19 years and you pay more than $9,000 in interest. That's just a huge difference versus someone who uses credit cards, pays them off right away, gets the rewards.
I realize it's easier said than done. Nobody wants to be in credit card debt, and it's often a practical cause, like a medical bill or car repair or just day-to-day living outpacing your paycheck. But it's becoming harder for people to dig out from these kind of situations because interest rates are high, because costs are high. The issues are falling disproportionately on those with lower and even middle incomes because there's just not as much that they can cut. There's just not a lot of wiggle room in the budget. And affordability issues are really the No. 1 concern of Americans right now.
RASCOE: That's Bankrate analyst Ted Rossman. Thank you so much for speaking with us.
ROSSMAN: No problem. Thank you. Transcript provided by NPR, Copyright NPR.
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