Despite numerous economic challenges, consumer spending has shown remarkable resilience in the last year, according to new findings from the New York Fed.
10/20/2023 1:50 P.M.
2.5 minute read
The New York Fed recently published a report on the current health of the U.S. consumer, examining the factors behind the surprising increase in consumer spending over the past year and exploring its future implications.
Key findings of the report:
1. Excess Savings: A Controversial Metric
One of the most-discussed aspects of consumer spending has been the concept of “excess savings,” or the additional savings that households accumulated during the pandemic due to reduced spending opportunities and fiscal transfers. However, the measure of excess savings is far from straightforward, according to the report. Various assumptions, such as pre-pandemic trends and the method of calculating excess savings, have led to significant disparities in estimates.
Economists generally agree that excess savings surged in 2021. Yet, recent estimations have diverged, making them less reliable for forecasting consumer spending. As the pandemic’s effects wane, measuring excess savings becomes increasingly complex, relying heavily on assumptions about behavior in a post-pandemic world.
2. Household Debt
Apart from savings, the role of debt in influencing consumer spending cannot be underestimated, according to the report. Household debt, including mortgages, has played a crucial part in supporting spending. Additionally, the pandemic brought about forbearances on various types of debt and generous fiscal transfers, leading to substantial improvements in household cash flows.
Mortgage refinancing and home equity extraction have released substantial cash flows for households as well. For example, millions of households refinanced their mortgages, resulting in significant annual savings. Additionally, homeowners extracted equity from their homes, making these funds available for consumption.
Student loan payments have largely been in forbearance since the pandemic’s early stages. This has also left households with a significant amount of cash that could further support spending.
3. Financial Health Indicators
Debt delinquencies, especially for mortgages, remain remarkably low, indicating the overall stability of household finances. Auto loan and credit card delinquencies have risen from their pandemic lows but remain at levels similar to 2019.
However, a critical question is whether these delinquency rates will continue to rise or level off. A further increase in delinquencies could signify that for some households, cash flow has become insufficient to meet financial obligations.
4. Confidence in Spending
Additional data from the New York Fed’s Survey of Consumer Expectations paints a confident picture of the future of consumer spending. Households’ expectations regarding spending, household income, and earnings growth are robust, remaining well above pre-pandemic levels. The probability of missing debt payments over the next three months is relatively low and stable, suggesting confidence in financial stability.
ACA’s Take
The accounts receivable management (ARM) industry is instrumental in keeping America’s credit-based economy functioning with access to credit at the lowest possible cost.
Research such as this from the New York Fed, academics and regulators reflects the industry’s integral role in maintaining a healthy economy and is helpful in
The New York Fed’s quarterly report is also helpful in ACA’s advocacy efforts to demonstrate how proposed regulations and laws on wage garnishment impact consumers’ overall access to credit based on where they live, their credit score and other demographics.
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