Financial Expectations of Americans Lowest Since 2010

Twenty-dollar bills are counted in North Andover, Mass., on June 15, 2018. Elise Amendola/AP Photo

Americans are becoming more pessimistic about their personal financial situation as well as the direction of the U.S. economy, with financial expectations at their lowest in over a decade.

The share of respondents who expect their personal financial situation to “get better” over the next 12 months dropped to 31 percent in February from 33 percent a month back, a February survey (pdf) by Fannie Mae shows. This is the lowest reading since the series began in 2010. It is also 20 points below the February 2020 numbers. Meanwhile, 20 percent of people expect their personal financial situation to “get worse” over the coming year while 48 percent expect it to “stay the same.”

The share of respondents who said the economy is on the “right track” was only 28 percent, far lower than the 71 percent who said the economy is on the “wrong track.”

The pessimism about personal finances and economy among Americans comes as the U.S. Federal Reserve is continuing to signal that its benchmark interest rates are poised to go up.

During his semiannual Monetary Policy Report address before the Senate Banking Committee, Fed Chairman Jerome Powell said that “the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

High Fed rates will push up interest rates on consumer and business loans. This can force businesses to cut back on spending. Consumer budgets can get squeezed further due to higher loan payments, which ends up affecting consumer spending as well, thereby dampening economic activity.

US Personal Financial Situation

U.S. household income growth and spending growth expectations registered a decline in January, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations.

“Median expected growth in household income dropped by 1.3 percentage point to 3.3 percent. This is the largest one-month drop in the nearly 10-year history of the series,” the survey states.

“Median household spending growth expectations decreased to 5.7 percent in January from 5.9 percent in December. This is the third consecutive decline in the series.”

The drop in expectations regarding income growth and spending growth is happening as household debt swelled to a record $16.9 trillion during fourth quarter 2022, registering the biggest quarterly increase in two decades.

Meanwhile, savings has dropped to record lows. According to data from the St. Louis Federal Reserve, the personal saving rate in January 2023 was only 4.7 percent. The personal saving rate is the percentage of people’s income left after they pay taxes and spend on expenses.

Following the pandemic, the saving rate peaked at 33.8 percent in April 2020. Before COVID became a major issue, the saving rate in January 2020 stood at 9.1 percent.

Inflation Woes

Americans are also struggling with the effects of elevated inflation. The 12-month Consumer Price Index, a measure of annual inflation, has remained above 6 percent for every single month since October 2021. Food price inflation has been above 6 percent every month since November 2021.

Most Americans believe that grocery prices will keep rising. Based on a poll by Rasmussen Reports published last month, 57 percent of respondents expect the price of groceries to be higher over the year. In addition, 57 percent said they had changed eating habits due to rising food prices.

Senior citizens have been severely affected due to rising prices. According to a November survey by market researcher Pollfish, rising prices forced 94 percent of Americans older than 55 years to cut back on recreation and leisure spending.

Almost half the respondents reduced their energy use, over 35 percent canceled family visit trips, and more than 14 percent had to skip meals.