Consumer outlook improves despite job uncertainty

Americans are slightly more bullish about 2026, according to a New York Fed survey released Thursday.

The central bank’s monthly consumer expectations survey found that while consumers expect inflation to rise in the short term, households are generally more optimistic about their future financial situation.

According to a New York Fed survey, perceptions of current financial conditions and expectations for next year have both improved, with fewer Americans expecting financial conditions to worsen and a larger portion expecting financial conditions to improve one year from now.

However, there are some concerns. According to the survey, forecasts for delinquency rates have worsened, rising to the highest level since the pandemic began.

The probability that people will not be able to repay their minimum debt in the coming months rose to 15.3%, the highest level since April 2020. The New York Fed study found that the increase was most pronounced among individuals over 60, those without a college degree, and those with annual household incomes of less than $50,000. Unemployment forecasts also worsened for all ages and education levels.

“Not knowing your job security makes it difficult to focus on other financial goals,” said Matt Schultz, chief consumer finance analyst at LendingTree.

Moody’s Analytics’ latest U.S. Household Credit Report also found that delinquency rates rose across the board in December. The report said delinquencies could continue to rise in the coming months as “increasing unemployment puts pressure on household budgets.”

A separate Conference Board report said consumers’ views on their current financial situation in December “collapsed” into negative territory for the first time since July 2022, the month after pandemic-era inflation peaked.

The Conference Board’s Expectations Index, which measures consumers’ near-term economic outlook, held steady at 70.7, well below the 80 level that signals a recession.

Meanwhile, consumers are taking advantage of the additional liquidity despite worrying about falling into the red. Credit card balances continue to rise, according to a recent report from TransUnion and VantageScore.

Credit card debt is increasing inequality as the consumer economy becomes increasingly fragmented, said Ted Rothman, senior industry analyst at Bankrate.

Approximately 175 million consumers have a credit card. Although some people pay off their balances every month, about 60% of credit card users carry revolving debt, according to the New York Fed.

In the so-called K-shaped economy, some borrowers are struggling to stay afloat, while others are strengthening their financial footing, primarily benefiting from rising stock markets and rising home values.

“The K-shaped economy is a significant part of the picture,” Rothman said in an email. “With stock and home prices at record levels, about 65% of Americans who own a home and about 60% who own stocks are benefiting, but not everyone is benefiting.”

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