Citi: Spending Decelerates as Consumers Grow More Cautious

Consumer spending is still growing but slowing, especially among those with lower FICO scores, Citi reported Friday (Oct. 13).

“The growth in spending is decelerating and the consumer is more mindful of what they spend on,” Citi CEO Jane Fraser said Friday during the bank’s quarterly earnings call. “Indeed, the affluent, who still have excess savings at their disposal, drove the growth in spending with a continued tilt to travel and entertainment.”

In some other gauges of customer behavior, Citi saw its average loans increase 1% compared to the previous quarter, while average deposits declined 2% during the same period, according to a presentation released in conjunction with the call.

During the quarter, the bank saw customer relationships and the associated deposits move from its Retail Banking business to Global Wealth Management. As a result, Retail Banking deposits were down 4%, the presentation said.

Citi Chief Financial Officer Mark Mason said during the call that this trend largely reflected “our clients putting cash to work in investments on our platform.”

Delinquencies have been trending up and loss rates are expected to follow in the next quarter or so, Mason said. Net credit loss (NCL) rates are likely to return to normal, pre-COVID levels by the end of the year.

“Our expectation is that as we go into ‘24, depending on the macro environment, we’re likely to see this tick up above those pre-COVID normalized rates as we see a slowdown in the economy — again subject to what the macro looks like — before kind of settling down at some point down the path,” Mason said.

Speaking of the macro environment, Fraser said during the call that in the U.S., “recent data implies a soft landing, but history would suggest otherwise, and we are seeing some cracks in the lower FICO consumers.”

In the Euro area and the U.K., “the picture has turned distinctly more negative,” Fraser said. “The summer weakness in industrial economies is spreading south and the weight of structurally higher labor and energy costs suggests a more enduring competitiveness challenge for that region.”

In China, Fraser said, the economy may have hit bottom, but it still faces weak sentiment, unemployment and a difficult property market. “All of these macro dynamics have clearly impacted client sentiment,” Fraser said.