Low Hire, Low Fire: What a Stagnant Labor Market Means for Credit Risk

From slower hiring and AI disruption to rising energy costs and geopolitical risk, Michael Lamm breaks down the forces reshaping credit risk.

Entering the second half of 2026, the economy is sending mixed signals. At first glance, the U.S. consumer appears to be holding up: unemployment rate held at 4.2% in June, with limited layoffs. However, employers added just 57,000 jobs during the month, signaling that fewer new positions are being created.

Meanwhile, the economy has continued to grow, with real GDP increasing at a 2.1% annual rate in the first quarter, while average hourly earnings rose 3.5% over the year ended in June. However, consumer prices increased at the same 3.5% rate, eroding much of those wage gains. Combined with elevated borrowing costs, these conditions leave millions of households with little room to absorb an income disruption or unexpected expense.

Auriemma Roundtables spoke with Michael Lamm, co-founder and managing partner of Corporate Advisory Solutions, about what the current environment means for lending, risk, and collections executives, as well as consumers. The interview has been edited and condensed for clarity.

Q: How would you describe the current credit risk environment?

The economy looks stable on the surface, but there is more stress underneath than the unemployment rate alone would suggest. Consumers are still working, which is important. At the same time, hiring is slow, wage growth is providing limited relief and everyday expenses remain high.

For credit risk leaders, the key question is whether consumers have enough cash flow to absorb another increase in food, fuel, housing or debt-service costs. A growing share of households, especially in the subprime segment, is not well positioned to withstand another shock.

Q: Why is the labor market so connected to credit performance?

Consumer credit ultimately comes back to income. While unemployment remains low, the labor market has settled into a “low hire, low fire” pattern. Employers are retaining workers but adding relatively few jobs, limiting consumers’ ability to find work, increase their hours or move into higher-paying roles.

The resulting risk may be less visible than in a traditional downturn. Most consumers remain employed, keeping portfolio performance relatively stable. However, those who lose a job or experience an income disruption may take longer to recover, allowing a temporary setback to become a more persistent credit problem.

Q: How are inflation and elevated interest rates changing consumer behavior?

Consumers are facing high prices for necessities alongside expensive borrowing costs. In June, consumer prices and average hourly earnings were both 3.5% higher than a year earlier, leaving little average improvement in purchasing power. Food prices rose 3%, while energy prices increased 15.7%, placing even greater pressure on lower-income households that devote more of their budgets to those expenses.

Q: Which consumers are under the most pressure currently?

Subprime consumers feel the strain most immediately because they tend to have thinner savings, higher borrowing costs and fewer refinancing options. Many are “robbing Peter to pay Paul,” deciding which bill to pay now and which to push into the next cycle. Even a higher gas bill or unexpected repair can force a difficult payment decision.

Younger adults face additional pressure from student loans, auto finance costs, expensive housing and slower entry-level hiring. Many are delaying homeownership or continuing to live with their parents, suppressing demand for mortgages, vehicles and other major purchases. The financial burden can also extend to parents helping cover their adult children’s living expenses, shifting risk across generations within the same household.

Q: What about student loans? How are shifting repayment options affecting borrowers?

Student loan payments compete with every other obligation in the household budget. Borrowers who became accustomed to a period of paused or reduced payments have had to reintroduce that expense while managing higher costs elsewhere.

Federal policy remains an important variable. The Department of Education has temporarily delayed involuntary collections while new repayment options are implemented. Payments are still due, however, and defaults may continue to be reported to credit bureaus.

Lenders should avoid treating student debt as an isolated exposure. It affects the amount of income available for auto loans, credit cards and other obligations. The impact will vary by borrower, so segmentation matters. Payment behavior, total debt service and recent changes in disposable income will provide a clearer picture than student loan balances alone.

Q: How are today’s geopolitical risks, such as tariffs or the conflict in the Middle East, most likely to surface in consumer credit portfolios?

Tariff-related price increases have become embedded in the cost of many goods. Consumers may have adjusted to those prices, but adjustment does not restore purchasing power.

The conflict in the Middle East adds another layer of uncertainty because disruptions to oil production and shipping routes can move quickly through fuel, transportation and goods prices. The Federal Reserve has already identified tariffs and higher energy costs as contributors to elevated inflation.

Credit risk teams should scenario-test what another increase in energy prices would mean for their portfolios. The effect will be uneven. Commuters, lower-income households, small-business owners and consumers in regions with limited transportation alternatives may see the greatest strain. Those differences can show up in payment behavior before they appear in broad economic data.

Q: How could AI reshape long-term workforce trends and the overall credit risk outlook?

I expect the employment impact to be selective. Customer-facing roles and work that requires judgment, relationship management or accountability will remain difficult to automate fully. At the same time, the career ladder may become narrower if companies need fewer people for junior-level tasks.

That matters for credit risk because income growth depends on more than whether someone has a job today. Younger workers need opportunities to enter the labor market, develop skills and progress into higher-paying roles. If AI slows that progression, lenders may see longer-term effects in household formation, borrowing demand and consumers’ ability to manage debt.

Q: What should credit risk leaders monitor through the rest of 2026?

Lenders should look beyond the unemployment rate to hiring activity, labor force participation, hours worked, long-term unemployment and wage growth by income group. Those indicators can reveal whether consumers are gaining financial flexibility or becoming more exposed to an income disruption.

Within their portfolios, institutions should monitor early-stage delinquency, roll rates and changes in payment hierarchy. Consumers who protect mortgage or auto payments while allowing unsecured debts to fall behind may signal growing pressure before charge-offs rise. Segmenting performance by income, age, occupation, industry and geography can also show where stress is concentrating.

The greatest risk is cumulative. High prices, expensive credit, student debt and limited income growth are leaving more households one disruption away from delinquency.