In many ways, the economy seems to be doing fine, but there’s a subtle undercurrent most Americans can feel that tells them everything is not all right. A recent study by the New York Federal Reserve picked through the data and uncovered some uncomfortable news for the Biden administration. Americans are not happy. Over half of the participants in the study felt that their financial situation was worse than the year before. That was just one of the many frightening data points uncovered. Here’s a brief list of some disturbing facts the Fed uncovered about how Americans feel about their household finances:
- Median year-ahead household spending growth expectations retreated from its series high in May, declining by 0.6 percentage point to 8.4% but remaining well above its 2021 average of 5.0%. The decline was the first this year and driven by respondents over age 40, those without any college education, and those with annual household incomes under $50k.
- Perceptions of credit access compared to a year ago continued to deteriorate in June, with the share of respondents finding it harder to obtain credit now than a year ago reaching a series high. Expectations about future credit availability deteriorated as well, with more respondents expecting that it will be harder to obtain credit in the year ahead.
- The average perceived probability of missing a minimum debt payment over the next three months increased by 0.2 percentage point to 11.3%. This is the highest reading of the series since May 2020, and comparable to its pre-pandemic level of 11.4% in February 2020.
- Perceptions about households’ current financial situations compared to a year ago deteriorated in June, with more respondents reporting being financially worse off than they were a year ago. Respondents were also more pessimistic about their household’s financial situation in the year ahead, with fewer (more) respondents expecting their financial situation to improve (deteriorate) a year from now.
- The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased to 33.8% from 36.2%.
Americans are also feeling less confident in their job prospects. The Fed study found:
- Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 1.8 percentage points to 40.4%, its highest level since April 2020. The increase was driven by respondents with annual household incomes over $50k.
- The mean perceived probability of losing one’s job in the next 12 months rose to 11.9% from 11.1%, but remains well below its pre-pandemic reading of 13.8% in February 2020. The mean probability of leaving one’s job voluntarily in the next 12 months declined to 18.6%, from 20.3% in May, remaining well below the pre-pandemic reading of 22.2% in February 2020.
- The mean perceived probability of finding a job in the next three months (if one’s current job was lost) declined to 56.8% from 58.2%, but remains slightly above its 12-month trailing average of 56.2%.
But the burning thought on all Americans’ minds in the Biden economy is inflation. The Fed study found:
- Median one-year-ahead inflation expectations increased to 6.8%, from 6.6% in May, marking a new series high. In contrast, median three-year ahead inflation expectations decreased to 3.6% from 3.9%. The increase in short-term expectations was driven by respondents over age 60 and respondents with at least some college education. The decline in medium-term expectations was broad-based across education and income groups. Our measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) increased at the one-year-ahead horizon and remained unchanged at the three-year-ahead horizon.
Action Line: You need to act now to protect your family from the Biden economy. Build a plan that takes inflation into account. If you need help building a portfolio that takes inflation into account, get in touch with me. If you want to get to know me better in the meantime, click here to subscribe to my free monthly Survive & Thrive letter, and we’ll weather this storm together.
E.J. Smith - Your Survival Guy
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