More U.S. households are financially worse off than they were a year ago, according to the Federal Reserve Bank of New York’s September Survey of Consumer Expectations (SCE).
Forty-one percent of households say they’re financially worse off than a year ago, up from 40 percent in August. By comparison, 18 percent report being better off, unchanged from the previous month. Forty-one percent say it’s about the same, down from 42 percent in the August SCE data.
Looking ahead, 29 percent of U.S. households believe that they‘ll be financially worse off a year from now, which is unchanged from August. Twenty-six percent think that they’ll be better off, up from 24 percent.
Household income growth expectations over the next year inched higher, to 3 percent from 2.9 percent. However, this measurement within the New York Fed’s monthly survey has been below 4 percent all year and remains well below its series 12-month trailing average of 3.5 percent.
As the Federal Reserve’s 22-year-high interest rates continue to travel throughout the financial system and broader economy, consumer expectations for debt delinquencies surged to their highest level since the early days of the COVID-19 pandemic, touching 12.5 percent. In addition, 54 percent of households think that it will be harder to access credit a year from now, up from 53 percent.
Last month, one-year-ahead consumer inflation expectations rose to 3.7 percent, up from 3.6 percent. Households anticipate paying more for food, with their year-ahead projections growing to 5.6 percent from 5.3 percent. Their predictions for gasoline and rent were flat, but they remained elevated at 4.8 percent and 9.1 percent, respectively. The big drop was seen in college tuition costs, plunging to 5.8 percent in September from 8.2 percent in August.
A Credit Shock for Consumers
In the second quarter, total credit card debt topped $1 trillion for the first time. As shoppers insert, swipe, or tap, the costs to service this consumer debt are intensifying. Recent estimates from WalletHub suggest that U.S. consumers will end the year owing about $150 billion more to credit card companies than they did at the start of 2023.According to the Fed, the average credit card interest rate reached an all-time high of 22.8 percent in August. As a result, consumers are making higher interest payments, with WalletHub estimating that they could pay as much as $40 billion more to service this debt.
“U.S. consumers are adding new credit card debt at a nearly unprecedented rate,” WalletHub analyst Jill Gonzalez stated in a report. “We added tens of billions of dollars in new credit card debt to our tab during the second quarter alone, which indicates that people are increasingly needing to borrow to make ends meet.”
“Credit card debt is more expensive than ever, given that credit card interest rates are higher than ever.”
The skyrocketing level of debt and higher interest payments are making it harder for consumers to keep up with their payments.
A new PYMNTS Intelligence report, titled “The Credit Accessibility Series: Economic Malaise Exacerbating U.S. Consumer Debt Levels,” suggests that one-third of consumers struggle to make payments on time.
Delinquency rates have been inching higher in the past 12 months. In August, industry researcher VantageScore reported that overall delinquencies are up across all categories and credit tiers. The situation could deteriorate fast as student loan repayments restarted this month, noted Susan Fahy, executive vice president and chief digital officer at VantageScore.
Optimism Fading
Since the reacceleration in headline inflation this summer, business and consumer optimism has diminished slightly.The National Federation of Independent Business’s (NFI) Small Business Optimism Index eased to a four-month low in September as more owners think that conditions will worsen in the next six months.
“Owners remain pessimistic about future business conditions, which has contributed to the low optimism they have regarding the economy,” Bill Dunkelberg, the NFIB’s chief economist, stated in the report. “Sales growth among small businesses has slowed, and the bottom line is being squeezed, leaving owners few options beyond raising selling prices for financial relief.”
The University of Michigan’s Consumer Sentiment Index retreated last month after hitting a near-two-year high in July, as consumers were uncertain about the trajectory of the U.S. economy.
This month, the IBD/TIPP U.S. Economic Optimism Index cratered to a 12-year low while the six-month economic outlook fell to a record low.
Despite widespread pessimism about the economy, some experts purport that the consumer remains resilient and the wider economic landscape is still in expansion mode.
The Atlanta Fed GDPNow model estimate expects that the U.S. economy will expand by more than 5 percent in the third quarter. The New York Fed Staff Nowcast forecasts 2.4 percent growth in the fourth quarter.
