More US Households Say They Are Worse Off Than a Year Ago: New York Fed

A grocery shopper stands in a food aisle in a store in New York, N.Y., on May 31, 2022. (Samira Bouaou/The Epoch Times)

As President Joe Biden and his administration try to promote Bidenomics and convince voters that the economy is strong, a new study found that more U.S. households are less optimistic about their financial situations as the pressures of high inflation and borrowing costs weigh on consumers’ wallets.

According to the Federal Reserve Bank of New York’s August Survey of Consumer Expectations (SCE), 41 percent of households say they’re financially worse off than a year ago, and nearly 30 percent believe that they will be worse off a year from now.

Conversely, only 24 percent of households said they will be better off next year, and 18 percent think they’re better off than they were in 2022.

The lackluster attitude regarding household finances might be driven by the belief that prices will continue to trend higher over the next 12 months.

Americans anticipate that consumer prices will be slightly higher, with one-year consumer inflation expectations rising to 3.6 percent, up from 3.5 percent, the New York Fed found. The three-year projection slid to 2.8 percent, down from 2.9 percent in July. The median five-year-ahead expectations rose from 2.9 percent to 3 percent.

In addition, year-ahead commodity price estimates swelled across the board, rising by 0.4 percent for gasoline to 4.9 percent, and by 0.1 percent for food to 5.3 percent. The cost of medical care jumped by 0.8 percent to 9.2 percent, while home price growth expectations advanced by 0.3 percent to a 13-month high of 3.1 percent. Price expectations for both college and rent jumped by 0.2 percent, to 8.2 percent and 9.2 percent, respectively.

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The consumer price index for August will be released this week, and the consensus estimate suggests a 3.6 percent annual print, up from 3.2 percent in July. Core inflation, which omits the volatile energy and food sectors, is expected to slow to 4.3 percent year over year. The substantial jump is expected to be driven by rising fuel costs, with both crude oil and gasoline costs climbing in August.

Other recent consumer sentiment surveys have eased.

The WalletHub Economic Index showed that consumers were 7 percent less confident about their financial outlook than they were a year ago, and consumers’ stress levels about money rose by 7 percent year over year.

The Conference Board’s Consumer Confidence Index also slipped in August, plummeting from a downwardly revised 114.0 in July to 106.1.

“August’s disappointing headline number reflected dips in both the current conditions and expectations indexes,” Dana Peterson, chief economist at The Conference Board, wrote in the report.

“Write-in responses showed that consumers were once again preoccupied with rising prices in general and for groceries and gasoline in particular.”

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Over the past year, research has found that consumers are turning to debt instruments—from credit cards to personal loans—to pay for necessities such as food, rent, and utilities. This resulted in total credit card debt topping $1 trillion for the first time in the second quarter of this year. With the average interest rate above 21 percent, consumers will owe about $150 billion more to credit card companies by the end of the year—up from an inflation-adjusted $116 billion increase in 2022, WalletHub analyst Jill Gonzalez said.

“U.S. consumers are adding new credit card debt at a nearly unprecedented rate,” Ms. Gonzalez said in a note. “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. Nevertheless, household finances are still in surprisingly strong shape.”

The new challenge gripping U.S. households might be the ability to access credit, according to the regional central bank’s findings. Fifty-three percent say it will be harder a year from now to obtain credit, and about 60 percent said credit accessibility is harder than it was a year ago.

Servicing credit card debt is another hurdle to overcome, as the delinquency rate swelled above 5 percent in the April-to-June period, up from 3.35 percent the previous year.

Yera Dominguez uses a credit card reader to process a customer's payment at Lorenzo's Italian Market in Miami on May 20, 2009. (Joe Raedle/Getty Images)

This could be a situation that spirals out of control if the jobs arena collapses.

After more than two years of a red-hot labor market, conditions are starting to cool off, and households are worried about rising unemployment. The monthly SCE report found that the mean expectation of losing a job rose to 13.8 percent—the highest rate since April 2021. This was up from 11.8 percent in the previous month.

The good news is that the mean probability of locating a position in the next three months if a job were lost today has remained steady at about 55 percent.

Last month, the unemployment rate shot up to 3.8 percent, up from 3.5 percent in July. The U.S. economy added 187,000 new jobs, while employment gains from the previous seven months were revised downward. Annual average hourly earnings also slowed to 4.3 percent in August.

Reading the Tea Leaves

More information regarding the state of the consumer will be published on Sept. 14, when retail sales data are released. The market expects a 0.2 percent gain in August, which would be the worst reading since March.

Moreover, the University of Michigan’s Consumer Sentiment Index for September will be released a day later. The consensus estimate shows a 69.1 print, down from 69.5 in August.

All eyes will be on the Fed’s two-day September policy meeting later this month.

The futures market is overwhelmingly pricing in that the Federal Open Market Committee will leave interest rates unchanged at the current target rate of 5.25 percent and 5.5 percent. However, expectations are shifting for November, with investors starting to price in a 25-basis-point rate hike.