Consumers Uneasy About US Labor Market, Household Finances in Year Ahead: New York Fed

A hiring sign at a grocery store in Deerfield, Ill., on July 25, 2024. Nam Y. Huh, File/AP Photo

Consumers are increasingly anxious about the U.S. labor market and their household finances, according to the Federal Reserve Bank of New York’s August Survey of Consumer Expectations (SCE).

Nearly 38 percent of respondents told the regional central bank that they expect the unemployment rate will be higher one year from now, up from 36.6 percent in July.

Fewer consumers expected to lose their jobs in the next 12 months, tumbling by one percentage point from the July report to 13.3 percent. This was below the 12-month trailing average of 13.7 percent.

SCE data also showed that the perceived probability of finding employment if one’s job is lost dipped by 0.2 percentage points to 52.3 percent. This, too, was below the 12-month average of 53.9 percent.

The probability of leaving a job voluntarily also slipped by nearly 2 percent to 19.1 percent.

The one-year outlook for expected earnings growth rose by 0.2 percentage points to 2.9 percent and was above the 12-month trailing average of 2.8 percent.

Last month, New York Fed economists published results from the SCE Labor Market Survey, conducted every four months. They reported “a sharp increase in the proportion of job seekers compared to a year ago.”

The share of individuals who reported searching for a job surged to 28.4 percent, up from 19.4 percent in July 2023. This represented the highest reading since the regional central bank started the series a decade ago.

Respondents further noted that the average reservation wage—the lowest wage individuals would accept for a new position—was higher than pre-pandemic levels, coming in at $81,147.

This suggests that inflation pressures might be higher than government data, says economist Peter St Onge.

“Inflation is not the 21 percent officially reported,” St Onge said in a Sept. 4 video posted to social media platform X. “It’s closer to the 35-plus we see in real-world price measures or, for that matter, real-world receipts people post online.”

Since January 2021, cumulative inflation has surged by more than 20 percent.

That said, Americans’ inflation expectations have stabilized, according to the August SCE report.

Further Inflation Anticipated

Consumers’ one- and five-year inflation outlooks were unchanged at 3 percent and 2.8 percent, respectively, according to the Survey of Consumer Expectations. Three-year-ahead inflation expectations also rose from 2.3 percent to 2.5 percent.

Individuals anticipate gasoline, medical care, and rent to be more expensive in the year ahead. Conversely, they expect growth in the costs of food and college tuition to ease next year.

A gas station in Chicago on May 21, 2024. Scott Olson/Getty Images

The Bureau of Labor Statistics will release the August consumer price index report. The consensus estimate suggests the annual inflation rate will slow to 2.6 percent from 2.9 percent in July. Core inflation, which removes the volatile food and energy categories, is projected to be unchanged at 2.9 percent.

The survey found that more respondents think their households’ current financial situation will deteriorate in the coming year.

“Perceptions about households’ current financial situations deteriorated slightly with fewer respondents reporting being better off than a year ago and more respondents reporting being worse off,” the report stated. “Year-ahead expectations also deteriorated somewhat, with a larger share of respondents expecting to be worse off.”

One-quarter of respondents think they will be “much” or “somewhat” worse off. More than one-third (36 percent) say their household’s financial situation is worse off than last year.

At the same time, New York Fed economists note that “overall, respondents remain considerably more optimistic about their financial situation compared to a year ago.”

Median expected growth in household income ticked higher by 0.1 percentage points to 3.1 percent. Likewise, median household spending growth expectations jumped by 0.1 percentage points to 5 percent.

“The series has moved within a narrow range of 4.9% to 5.2% since November 2023, remaining well above its February 2020 level of 3.1%,” the report stated.

Credit availability expectations slightly improved in August.

For the third consecutive month, the average perceived odds of missing a minimum debt payment over the next three months climbed by 0.3 percentage points to 13.6 percent, the highest level since April 2020.

According to the New York Fed’s second-quarter Household Debt and Credit Report, credit card debt increased by $27 billion to $1.14 trillion in the second quarter. The flow into serious delinquency (90 days or more delinquent) for credit card debt surged to 7.18 percent from 5.08 percent in the same quarter last year.

However, personal finance publication WalletHub says real (inflation-adjusted) second-quarter total credit card debt was roughly $1.28 trillion. The outlet notes this is about 13 percent below the inflation-adjusted peak from December 2008.

With the Federal Reserve expected to cut interest rates later this month, borrowers can pencil in savings in 2025, says WalletHub editor John Kiernan.

“Consumers can expect to save around $1.87 billion in interest charges over the next year alone if the Fed cuts its target rate by 25 basis points on September 18,” Kiernan said in a statement. “We really need to take advantage of the savings, considering that the rate cut could very well fan the flames of inflation.”

Investors overwhelmingly expect the Fed to lower the benchmark interest rate by 25 basis points, the first cut since the onset of the coronavirus pandemic.

The Fed will hold its two-day policy meeting on Sept. 17 and 18.