Job Security Concerns Grow as Probability of Finding New Employment Dips

People wait in line to speak with prospective employers during a career fair in Los Angeles, Calif., on Nov. 2, 2023. (Frederic J. Brown/AFP via Getty Images)

The latest survey by the Federal Bank of New York reveals growing job insecurity among Americans, coupled with a surge in debt-delinquency expectations, reaching their highest level since the pandemic. These developments indicate mounting challenges for U.S. consumers and signal potential trouble ahead.

According to the New York Fed’s survey, released on Aug. 12, American consumers have become more pessimistic about the prospect of finding a new job after losing their current one as the perceived probability of finding new employment fell by 0.9 percentage point, to 52.5 percent in July.

The nearly 1 percentage-point drop is a significant decline, all the more so given the recent disappointing government jobs report, which showed that the U.S. economy created fewer jobs than expected and the unemployment rate rose to 4.3 percent, defying expectations that it would hold steady at 4.1 percent.

The significance of the decline was partially offset by the fact that consumers believed in July that they were 0.5 percentage points less likely to lose their job in the first place.

At the same time, consumers’ year-ahead expected earnings growth declined by 0.3 percentage points, suggesting that workers are feeling the pinch of an uncertain economic environment.

Further clouding the economic outlook is a rise in debt delinquency expectations. The New York Fed survey highlighted that the average perceived probability of missing a minimum debt payment over the next three months increased by 1.0 percentage points, to 13.3 percent, the highest level since April 2020, when the economy was in the grip of the pandemic recession.

Debt-delinquency concerns are echoed by another Fed report, which showed aggregate rates stabilizing in the second quarter, but flows into serious delinquency (90 days or more of missed payments) surged for credit card debt and swelled for auto loan debt and mortgage debt.

Rising job insecurity and fears of not being able to make loan payments cast a shadow over consumer spending, which is a key driver of the U.S. economy. As workers become more uncertain about their employment prospects, they are likely to pull back on spending and prioritize debt payments, leading to slower economic growth.

Concerns about a pullback in consumer spending were bolstered by a drop in household spending expectations to 4.9 percent, the lowest level since April 2021, according to the New York Fed survey.

The decline in spending growth expectations aligns with concerns raised by Bank of America CEO Brian Moynihan, who in an Aug. 11 interview on CBS warned that spending had slowed, consumers were tapping their savings for essential goods, and inflation-weary shoppers were increasingly hunting for bargains.

Rising consumer delinquencies is an issue that was raised by Austan Goolsbee, president of the Federal Reserve Bank of Chicago, in an Aug. 5 interview in which he expressed concern that the Fed’s high interest-rate policy may be cooling the economy too much. His interview came as markets reacted to a disappointing government jobs report with a massive selloff. The Chicago Fed chief said that markets may be overreacting despite signs of weakness in the economy, given that consumer spending hasn’t collapsed and that the jobs numbers weren’t “yet” in recession territory.

The view that U.S. households are in decent shape at the moment was bolstered by the New York Fed survey, which showed that households’ current financial situations compared to a year ago have improved slightly.

However, the survey also showed that the year-ahead financial situation expectations have deteriorated, indicating that households may be managing for now, but they are increasingly worried about the future, particularly as job prospects become more uncertain.