Fed Data: US Consumers See Higher Risk of Missing Debt Payments

Takeaways from the Federal Reserve Bank of New York’s March Survey of Consumer Expectations include emerging concerns about debt.

Consumers haven’t budged in their expectations about inflation — at least in terms of the one-year outlook. But they’re incrementally more worried about job security — and are increasingly concerned about missing debt payments.

The Fed’s data shows that in terms of inflation, for three months running, the median year-ahead inflation expectations remained unchanged at 3%. But expectations for three years from now indicate that the median three-year ahead inflation expectations were 2.9%, up from a February 2.7%, whereas the median expectations for five years ahead decreased to 2.6% from 2.9%.

And within those expectations, consumers see costs rising for some of the most basic necessities, as median year-ahead expected price changes increased for all goods in the survey, by 0.2% for gas and food to 4.5% and 5.1%, respectively and were 2.6% higher for rent to 8.7%.

“The mean perceived probability of losing one’s job in the next 12 months increased by 1.2 percentage point to 15.7%. This is above pre-pandemic levels and the highest reading since September 2020,” the Fed reported.

Paring Back Spending Expectations

Median expected growth in household income was unchanged at 3.1% in March, but spending growth expectations declined by 0.2% point to 5.0% — which indicates that spending will outpace money coming in the door.

Consumers said they were “slightly more pessimistic about future credit access” and more people expect tighter credit conditions a year from now.

“The average perceived probability of missing a minimum debt payment over the next three months rose by 1.5% to 12.9%. This is the highest reading in four years since the onset of the COVID-19 pandemic. The increase is most pronounced among respondents between the ages of 40 and 60, and those with income below $50,000.”

PYMNTS Intelligence data show that credit has been an important way in which the paycheck-to-paycheck economy has managed the obligations of daily financial life. Fifty-seven percent of credit cards are owned by consumers living paycheck to paycheck, which in turn accounts for more than 60% of U.S. consumers. And only about 38% of consumers we’ve surveyed see being able to increases their savings this year.

As many as 20% say their savings will decrease this year. The pressures, then are stark. If savings are likely to be depleted, and spending outpaces income growth, then credit as a lifeline helps plug the gap. But if credit is harder to come by, and if more consumers are worried about missing debt payments — which in turn would hit credit scores, and thus tighten the credit spigots even further — the real casualty may be consumer spending (despite the intent to keep spending but where reality is a cold splash of water), which drives the economy at large.