U.S. consumers are increasingly worried about falling behind on their bills, with default expectations rising to the highest level since the outbreak.
A survey released by the New York Federal Reserve Bank on Monday showed that the average probability that consumers will fail to make minimum debt payments in the next three months rose to 13.3%, the highest level since April 2020. This pressure increases most for people who earn less than $50,000 a year and have a high school degree or less.
Views of access to credit have also worsened compared with a year ago, with expectations for household spending growth falling to their lowest level in more than three years, the survey showed.
Workers’ views of the labor market are more complex. While Americans are less worried about losing their jobs and rising unemployment next year, consumers say they expect it will be harder to find work after losing their jobs.
The findings are consistent with broader economic data, which shows the labor market is softening and more consumers are defaulting on their debt. Hiring slowed in July and the unemployment rate unexpectedly rose to 4.3%, the highest level in nearly three years.
A separate report on household debt and credit released last week by the New York Fed showed that auto loan balances and the share of newly delinquent credit card debt reached their highest levels in at least a decade.
Fed officials are paying more attention to employment issues now that inflation has cooled significantly and the labor market is softening. Policymakers have kept benchmark interest rates at two-decade highs for more than a year but have said they would start cutting borrowing costs as early as September if inflation continues to fall.
A survey of consumer expectations released on Monday showed that short- and long-term inflation expectations remained stable, with the median one-year inflation outlook unchanged at 3% and the five-year forecast unchanged at 2.8%. However, expectations for inflation three years from now fell 0.6 percentage points to 2.3%, the lowest level since the survey began in 2013.
