Fears rise of consumer debt delinquency, N.Y. Fed survey shows

Despite recovery, more working Americans showing increasing signs of strain

By  |  Published: June 13, 2017

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

  Consumer fears of missing their debt payments rise.

Consumers’ fear of missing a debt payment rose in May for the third month in a row, according to the Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations.

Asked the odds of missing a minimum debt payment within the next three months, consumers estimated 13.1 percent, on average, up from 12.2 percent in April and 11.2 in March, according to the survey.

“The increase was driven by respondents with household income of $50,000 or more,” the New York Fed said in a press release, “and those ages 60 or less.”

The rising perception of a payment squeeze reinforces other indications that consumers are starting to feel strain from the debt they’ve taken on, as the economic recovery rolls toward its ninth year.

Chart: Probability of missing minimum payment over the next three months

Delinquencies on credit cards balances are starting to head upward, the New York Fed noted in its most recent Household Debt and Credit Report for the first quarter of 2017. At the same time, household debt passed its pre-recession peak for the first time.

Banks also expect credit card holders to have more trouble paying monthly bills on time this year, according to the Federal Reserve’s survey of senior loan officers.

However, while it is trending upward, the overall default rate remains near the low end of its long-term range.

“When you look at the big picture, people are managing their debt very well, historically,” said Robert Frick, economist at Navy Federal Credit Union. “This is not to say we don’t see delinquencies picking up.”

More working Americans fear missing payments
The Survey of Consumer Expectations collects responses from a rotating panel of 1,300 households, chosen to reflect the nation as a whole.

 In other results from the May edition:

  • People in their working years are the ones expecting trouble paying their debts. Fears of missing a payment jumped among people under 40 and ages 40 to 60. For people over 60, fears of missing a payment declined.
  • Expectations of higher interest rates are climbing – 37.2 percent said rates on savings accounts will be higher a year from now. In May 2016, the average was 29.6 percent.
  • Fears of rising prices reached a low for the year. Asked to predict inflation a year from now, respondents said 2.59 percent, down from a 2017 high of 2.98 percent in January.
  • Expectations of higher earnings hovered within the range established for the year. The median expectation for earnings growth in the year ahead was 2.21 percent.

A pessimistic outlook for consumers
The report carries a tone of general pessimism from consumers, Frick added, as expectations of wage growth lag previous recoveries. Consumers expect 2.21 percent higher wages in the year ahead, in line with actual wage growth of 2.4 percent at an annual rate in the first quarter, as reported by the U.S. Bureau of Labor Statistics. Growth of about 3 percent or above has been the norm in past expansions.

“I think they’re coming to the realization they have to reassess their expectations for the future,” Frick said of consumers. “Even though stock market is doing well, corporate profits are doing well, consumers aren’t doing particularly well.”

See related: Consumer debts rise, but fears of missing payments fall, Fed: Card balances rise $1.5 billion in April


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Updated: 10-20-2017

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