El-Erian: Low-income Americans are near recession, putting rest of economy at risk

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stop spending, not because they don't want to spend, but they're not able to spend. That will contaminate upwards for the economy as a whole," El-Erian said in an interview during Yahoo Finance's annual Invest conference.The economy has become increasingly bifurcated as higher-income consumers continue to spend while lower-income households have been forced to pull back. El-Erian said that lower-income consumers are "near recession" at a time when inflation is stuck at 3%, layoffs are surging, AI is changing the workforce, and debt levels are high as credit cards have been maxed out.Click here to see full coverage from InvestPrivate-sector data is signaling weakness in the job market as employers aim to cut costs and use AI at the margins. Last week, global outplacement and executive coaching firm Challenger, Gray & Christmas reported that layoffs hit the highest level for October in over 20 years as employers shed over 150,000 jobs, up 183% from the 54,064 job cuts in September. Meanwhile, payroll processor ADP's most recent monthly report found businesses added 42,000 private-sector jobs last month, compared with a loss of 29,000 in September.Mohamed El-Erian attends the 49th edition of the Cernobbio Forum in September 2023 in Cernobbio, Italy. (Pier Marco Tacca/Getty Images) · Pier Marco Tacca via Getty ImagesEl-Erian said what keeps him up at night is no longer the specter of a trade war from higher tariffs, but low-income consumers who are carrying large debt loads and the risk that they have to refinance at higher interest rates.This fall, delinquencies on subprime auto loans caused small and large banks alike to take losses, raising questions about whether the economy is turning, given that subprime borrowers typically are the first to default, as well as the potential for larger credit issues. Jamie Dimon, CEO of JPMorgan Chase, one of the companies that incurred subprime auto loan losses, famously warned that where there is one cockroach, there could be more.El-Erian offered the analogy that while there may be cockroaches lurking in the credit system, there aren't termites, which eat away at the integrity of the foundation."We'll have some economic accidents, but I don't think we're going to have any systemic shock," El-Erian said.He noted that people have stretched their finances with encouragement from a strong economy, a high stock market, and lower borrowing rates right after the pandemic.Terms and Privacy PolicyPrivacy & Cookie SettingsMore InfoS&P 5006,734.11 -3.38 (-0.05%)Dow 3047,147.48 -309.72 (-0.65%)Nasdaq22,900.59 +30.19 (+0.13%)Russell 20002,388.23 +5.25 (+0.22%)VIX19.83 -0.17 (-0.85%)Gold4,094.20 -100.30 (-2.39%)PortfolioSign in to access your portfolioSign inTop gainersCDTX Cidara Therapeutics, Inc. 217.71 +111.72 (+105.41%)SRRK Scholar Rock Holding Corporation 37.41 +7.34 (+24.41%)AVDL Avadel Pharmaceuticals plc 23.56 +4.32 (+22.45%)LGN Legence Corp. 40.27 +6.95 (+20.86%)CSIQ Canadian Solar Inc. 33.58 +4.96 (+17.33%)Top losersDGNX Diginex Limited 10.53 -2.97 (-22.00%)STUB StubHub Holdings, Inc. 14.87 -3.95 (-20.99%)HTFL Heartflow, Inc. 27.98 -2.96 (-9.57%)EOSE Eos Energy Enterprises, Inc. 13.80 -1.40 (-9.24%)CLSK CleanSpark, Inc. 10.96 -1.02 (-8.51%)Most activeNVDA NVIDIA Corporation 190.17 +3.31 (+1.77%)ONDS Ondas Holdings Inc. 7.18 +0.62 (+9.45%)OPEN Opendoor Technologies Inc. 8.12 -0.44 (-5.14%)TSLA Tesla, Inc. 404.35 +2.36 (+0.59%)PFE Pfizer Inc. 25.06 -0.73 (-2.83%)Earnings eventsMy earnings eventsEarnings eventsTrending tickersBTC-USD Bitcoin USD 94,212.98 -1,537.62 (-1.61%)ETH-USD Ethereum USD 3,075.40 -93.90 (-2.96%)XRP-USD XRP USD 2.18 -0.06 (-2.64%)SOL-USD Solana USD 136.33 -4.92 (-3.48%)ZEC-USD Zcash USD 730.53 +80.91 (+12.45%)Top economic events