A recent survey by the New York Federal Reserve Bank revealed that a record number of Americans are finding it increasingly challenging to secure credit compared to the previous year. This development could potentially hinder consumer spending in the coming months. The survey, initiated by the bank in June 2013, also indicated a decline in expectations for future credit availability.
Despite unexpected strength in consumer spending this summer, catching both Federal Reserve officials and financial markets off guard, economists still anticipate a slowdown in the overall economy. However, consumer spending, when adjusted for inflation, experienced a 0.6% rise in July, indicating that any deceleration would likely occur in the final quarter of the year.
Banks have taken measures to tighten loan standards and credit terms throughout this year, particularly following the collapse of Silicon Valley Bank in March. The regional-bank crisis exposed the challenges faced by financial institutions as they hold numerous low-interest-rate assets, which have diminished in value due to the Federal Reserve’s aggressive interest rate increases since early 2022.
The monthly survey further revealed that Americans’ perception of their financial situations has generally worsened, with both current and year-ahead expectations declining. The median expected growth in household income dropped by 0.3 percentage points to a reading of 2.9% in August, marking its lowest level in over a year.
Similarly, median household spending growth expectations saw a marginal decline of 0.1 percentage points to 5.3%.
Concerns about job security also heightened in August, as the perceived probability of job loss within the next 12 months rose by 2 percentage points to reach 13.8%, the highest reading since April 2021.
Inflation expectations, on the other hand, remained relatively stable. The median one-year-ahead inflation expectation increased by 0.1 percentage points to 3.6%, while the five-year-ahead inflation expectation index also experienced a slight rise, reaching 3%.
