The average amount that consumers allocated to pay down debt reached its highest level since August 2016, according to findings from the Federal Reserve.
01/25/2024 2:45 P.M.
3.5 minute read
The Federal Reserve Bank of New York’s Center for Microeconomic Data recently released its Survey of Consumer Expectations Household Spending Survey, detailing trends in household borrowing and indebtedness, including data about mortgages, student loans, credit cards and auto loans.
The report found that households’ reported large purchases decreased compared to August 2023, but there was an increase in spending on home repairs and electronics.
Overall household spending growth expectations for the next year also moderated to 3% in December 2023, the lowest since December 2020. In response to an unexpected 10% income increase, the average share allocated to pay down debt reached its highest level since August 2016, while the share for spending hit its lowest level since the series began in August 2015.
The Survey of Consumer Expectations (SCE) is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month.
The SCE provides information on how consumers anticipate general inflation as well as the behavior of food, gas, housing and education prices. It also sheds light on how Americans perceive their chances of finding work, the increase of their income, and the likelihood that they will be able to access credit in the future. The SCE offers measurements of consumer outlook uncertainty as well. Expectations can be found according to factors including age, location, income and education.
Here are the main findings:
- “The median increase in monthly household spending compared to a year ago declined to 5% in December 2023, from 5.5% in August and 7.1% in December 2022, but remained well above its pre-pandemic level of 2.5% in December 2019. The decrease was most pronounced for respondents above age 60, with annual household incomes less than $50k and those with at most a high school degree.
- Almost 60% of households in December 2023 reported making at least one large purchase in the last four months, below the 63.5% reading in August, but above the December 2022 level of 56.4%.
- The share reporting making a large purchase on home appliances and electronics increased in December 2023 relative to August, while the share reporting large item spending on furniture, vehicles, home repairs, homes, and vacations fell. The share reporting a large purchase on furniture declined to its lowest value since April 2020 and is below pre-pandemic levels.
- The reported degree of month-to-month variability in household income was slightly lower in December 2023 compared to its August and December 2022 readings.
- Median expected growth in monthly overall household spending over the next year decreased to 3% in December 2023, from 3.4% in August, its lowest reading since December 2020. The decrease was broad-based across age, income, and education groups.
- Median year-ahead expected spending growth on housing increased slightly to 3% while it declined for food to 5.4%, clothing to 2.3%, transportation to 4.6%, medical care to 4.1%, utilities to 4.4%, and recreation to 2.6%.
- Differentiating spending on essential and non-essential items, the median year-ahead expected change in everyday essential spending dropped to 4.5% in December from 4.8% in August, its lowest reading since December 2020 but well above pre-COVID levels. The median expected change in spending on non-essential items over the next year instead remained unchanged at 1.9%.
- The average reported likelihood of making a large purchase over the next four months declined in December for home appliances, electronics, furniture, home repairs, vehicles, and vacations. Meanwhile, it increased for buying a home. This finding is consistent with households expecting a smaller increase in overall spending dollars over the next 12 months.”
Detailed results are available here.
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 ACA’s advocacy efforts to show that overly restrictive regulations on the collection process have led to a decrease in available credit for consumers.
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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