Anxiety Rises as Nearly 38% of Americans Expect Higher Unemployment Rate in a Year

Anxious Consumers Predict Higher Unemployment Rate, but Optimistic about Earnings Growth and Inflation Expectations

As concerns about the U.S. labor market and household finances continue to grow, the Federal Reserve Bank of New York’s August Survey of Consumer Expectations (SCE) reveals that nearly 38 percent of respondents expect the unemployment rate to be higher in a year, up from the 36.6 percent reported in July. However, there is a glimmer of hope as fewer consumers anticipate losing their jobs in the next 12 months, dropping to 13.3 percent from the previous 13.4 percent.

The survey also shows that the perceived probability of finding employment after losing a job dipped slightly to 52.3 percent, indicating a slight decrease in confidence. Additionally, the probability of leaving a job voluntarily decreased by almost 2 percent to 19.1 percent. These figures suggest a cautious approach from consumers when it comes to job security and mobility.

On the other hand, respondents expressed optimism regarding expected earnings growth, with a 0.2 percentage point increase to 2.9 percent. This figure surpasses the 12-month trailing average of 2.8 percent, indicating that consumers anticipate improvements in their financial situations.

Interestingly, New York Fed economists recently published results from the SCE Labor Market Survey, conducted every four months, which revealed a sharp increase in the proportion of job seekers compared to a year ago. The share of individuals searching for a job surged to 28.4 percent, the highest reading since the series began a decade ago. This suggests that despite concerns about unemployment rates, there remains a strong desire among individuals to find employment.

Moreover, the survey highlighted an intriguing trend: the average reservation wage, which represents the lowest wage individuals would be willing to accept for a new position, was higher than pre-pandemic levels at $81,147. Economist Peter St Onge suggests that this could indicate higher inflation pressures than what official government data reports. He argues that inflation is closer to the 35-plus percent seen in real-world price measures and receipts posted online, rather than the officially reported 21 percent.

While cumulative inflation has surged by more than 20 percent since January 2021, the August SCE report indicates that Americans’ inflation expectations have stabilized. Both the one- and five-year inflation outlooks remained unchanged at 3 percent and 2.8 percent, respectively. However, three-year-ahead inflation expectations rose from 2.3 percent to 2.5 percent. Respondents anticipate increases in the prices of gasoline, medical care, and rent, while expecting the costs of food and college tuition to ease next year.

In terms of household finances, the survey found that more respondents believe their current financial situation will worsen in the coming year. The report states that perceptions about households’ current financial situations deteriorated slightly, with fewer respondents reporting being better off than a year ago. One-quarter of respondents fear being “much” or “somewhat” worse off, while 36 percent believe their household’s financial situation is worse than last year. However, it is important to note that respondents remain considerably more optimistic about their financial situation compared to a year ago.

Interestingly, median expected growth in household income increased by 0.1 percentage points to 3.1 percent, and median household spending growth expectations rose by 0.1 percentage points to 5 percent. These figures suggest that despite concerns about financial stability, consumers still anticipate growth in their income and spending.

Credit availability expectations slightly improved in August. However, the average perceived odds of missing a minimum debt payment over the next three months climbed to 13.6 percent, the highest level since April 2020. This aligns with the second-quarter Household Debt and Credit Report from the New York Fed, which revealed an increase in credit card debt by $27 billion to $1.14 trillion. The report also noted a surge in serious delinquency rates for credit card debt, with 7.18 percent of balances being 90 days or more delinquent.

Nevertheless, there is some good news for borrowers. With the Federal Reserve expected to cut interest rates soon, WalletHub editor John Kiernan suggests that consumers could save approximately $1.87 billion in interest charges over the next year if the rate is lowered by 25 basis points. However, Kiernan warns that the rate cut could potentially fuel inflation, emphasizing the importance of taking advantage of the potential savings.

In conclusion, while consumers express concerns about the labor market and household finances, there are pockets of optimism regarding earnings growth and stabilized inflation expectations. The survey also highlights the growing number of job seekers, indicating a strong desire to find employment despite the uncertainties. It is important for individuals to stay informed about the changing economic landscape and make informed financial decisions to navigate these challenging times.