Total Consumer Lending Sees Largest Increase Since November 2022

U.S. consumers are growing increasingly concerned about their job security and household debt, despite a perceived easing of inflation. According to the August Survey of Consumer Expectations (SCE) conducted by the New York Federal Reserve Bank, respondents predict an inflation rate of 3% for the next year and 2.8% for the next five years, consistent with the previous month’s expectations.

Consumers anticipate significant price increases for gasoline, rent, and medical expenses in the coming year, with moderate increases expected for food prices and college tuition. However, concerns about debt repayment have risen for the third consecutive month, with 13.6% of respondents expecting to miss debt payments in the next three months – a 0.3 percentage point increase from the previous month and the highest level in four years and four months since the COVID-19 pandemic began.

The labor market outlook is mixed, with decreased concerns about unemployment offset by reduced expectations about finding new employment opportunities. The likelihood of losing a job in the next 12 months has decreased to 13.3%, down 1 percentage point from the previous month and lower than the 12-month average of 13.7%. Conversely, the likelihood of voluntarily changing jobs has fallen to 19.1% in August, down from 20.7% the previous month.

The probability of re-employment after unemployment has also decreased, falling 0.2 percentage points to 52.3% – lower than the 12-month average of 53.9%. However, expected increases in household income have risen 0.1 percentage points to 3.1%, and expected increases in consumption have also risen 0.1 percentage points to 5.0%.

Total consumer debt in the U.S. has seen its largest increase since November 2022, driven by growth in both revolving debt (such as credit card outstanding balances) and non-revolving debt (such as student loans). According to the Federal Reserve, total consumer loans borrowed by general consumers from financial institutions have increased by $25.5 billion compared to the previous month, surpassing expectations in a Bloomberg survey of economists.

Revolving debt has risen $10.6 billion, the largest increase in five months, while non-revolving debt has surged $14.8 billion – the largest increase in over a year. This growth in consumer lending appears to have contributed to the rise in retail sales, which saw its largest increase in July since early 2023.

However, the proportion of auto loan delinquencies has increased by the largest amount since 2010, and the proportion of new credit card delinquencies has also risen by the most in about 12 years to 9.05%.