A growing sense of financial unease has swept across American households, as optimism about income growth, job prospects, and credit conditions takes a hit. According to the New York Fed’s August 2023 Survey of Consumer Expectations, consumers are not only feeling financially worse off than they were a year ago, but also project a gloomier outlook for the coming year. The survey, which gathered responses from approximately 1,300 households, provides insight into consumer perspectives on inflation, job prospects, earnings, and spending, painting a picture of a populace grappling with economic uncertainty.
The survey’s findings reveal a dip in expected growth in household income, which dropped 0.3 percentage point to 2.9% in August, the lowest reading since July 2021. Concurrently, median household spending growth expectations decreased by 0.1 percentage point to 5.3%. The ability to obtain credit has also become more challenging compared to a year ago, and future expectations for credit availability have worsened. As households navigate this complex financial landscape, the perceived probability of missing a debt payment over the next three months has fallen to 11.1%, marking a drop of around half a percentage point.
U.S. Households Feel Financial Strain Amid Economic Uncertainties
American households are growing more pessimistic about their current and future financial situations, according to a recent survey conducted by the New York Federal Reserve Bank. The August 2023 Survey of Consumer Expectations reveals that many consumers feel their financial circumstances have slightly deteriorated compared to the previous year, with expectations for income growth, credit conditions, job prospects, and inflation worsening.
Declining Expectations on Income Growth and Spending
The survey gathered responses from approximately 1,300 households, collecting data on expectations for inflation, job prospects, earnings, and spending. The results showed that anticipated growth in household income dropped to 2.9% in August, down 0.3 percentage point from the previous figure, marking the lowest reading since July 2021. Concurrently, median household spending growth expectations saw a slight decrease of 0.1 percentage point, settling at 5.3%.
Credit Access and Debt Repayment Concerns
Households reported increased difficulty in obtaining credit compared to a year ago, with future expectations for credit conditions also worsening over the course of the month. The perceived probability of missing a debt payment over the next three months declined by approximately half a percentage point, landing at 11.1%.
Job Market Instability and Inflation Fears
Expectations for earnings growth over the next year remained relatively stable at 2.9%, showing a modest increase of 0.1 percentage point. However, unemployment expectations rose by 1.8 percentage points to 38.5%, and households reported a 2 percentage points increase in the probability of job loss in the next year, reaching the highest rate since April 2021. The probability of voluntarily leaving a job also saw an increase, rising by 1.9 percentage points to 18.9%.
Inflation expectations for the one- and five-year-ahead periods increased slightly, reaching 3.6% and 3% respectively. However, inflation uncertainty remained unchanged for the one-year-ahead timeframe, while it decreased for the three- and five-year periods.
Lower Expectations for Stocks and Interest Rates
The survey also found that fewer households expect stock prices and interest rates on savings accounts to be higher a year from now. Simultaneously, expectations for lower taxes have also diminished.
The results of the New York Fed’s survey suggest a pervasive sense of financial uncertainty among U.S. households. As consumers grapple with unstable job prospects, fluctuating income growth, and uncertain credit conditions, policymakers will need to address these issues to restore consumer confidence and ensure economic stability. However, the decrease in inflation uncertainty for longer-term periods may be a silver lining, indicating that households have some confidence in the Federal Reserve’s ability to manage inflation in the long run.