PayPal’s CEO says the US consumer has been resilient, but is showing signs of fragility

The US consumer has been a source of strength for the economy in the wake of the Covid-19 pandemic. But cracks may be starting to show in consumer finances, according to PayPal CEO Dan Schulman. While the economy is "not out of the woods yet," he adds, "inflation is starting to come down" and we're "moving in the right direction."

"The consumer has been pretty resilient - I think everyone's seen that," Schulman said in an interview with Goldman Sachs Chairman and CEO David Solomon at the Communacopia + Technology Conference in San Francisco. "But I do think the consumer is somewhat fragile right now."

Schulman points to household savings that are "coming down quite meaningfully" as pandemic-era government benefits are exhausted and spending on so-called "revenge travel" peaks. Schulman also cites data showing that consumer credit is reaching record levels. "You're beginning to see credit defaults tick up a little bit," he says. "As you look out to the fourth quarter and into next year, I think you'll probably start to see travel, entertainment, ticketing, start to slow a little bit," he says.

That jibes with other company leaders' views expressed during second-quarter earnings. Goldman Sachs Research found in a report that a theme during earnings season was "newfound concern" about the health of lower-income consumers due to rising delinquency rates on credit cards and sub-prime loans for cars. But the team also noted that its analysis of retailer financial results indicates the lower-income consumer is "outperforming." Credit card data tells a similar story of outperformance, though spending by lower-end consumers is expected to slow somewhat in the fall.

Schulman says he expects discretionary spending to rise as inflation cools, and he credited the Federal Reserve for "raising rates in a controlled way" and helping to bring down inflation. "I would say the economy is moving in the right direction but it's fragile here in the US," he said, adding that Europe is barely growing. "I think they've got a longer row to hoe."

In their own analysis of the outlook for US consumer spending in a separate report, our economists recently made the case for a "still strong" consumer in 2024. They cited continued job gains and positive real (inflated adjusted) wage growth that should continue to boost real income. But they added that real spending growth will likely lag the 2-3% rate implied by the pace of income growth, in part because balance sheets among lower-income households have weakened.

PayPal recently announced that senior Intuit executive Alex Chriss will succeed Schulman as the company's president and CEO on September 27. Schulman joined PayPal as president in 2014 and as CEO helped navigate its separation from online shopping site eBay.

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