Although consumers are optimistic that inflation will ease, concerns about jobs and household debt are rising. With household debt and delinquency rates increasing simultaneously, there are fears that the consumer spending that underpins the economy may start to slow.

According to the New York Federal Reserve’s (NY Fed) August Survey of Consumer Expectations (SCE), respondents expect inflation to be 3% over the next year and 2.8% over the next five years, remaining steady compared to the previous month.

For the coming year, consumers expect significant price increases for gasoline, housing rent, and healthcare, with modest rises in food prices and college tuition.

Additionally, the percentage of respondents anticipating they will be unable to repay debt over the next three months increased for the third consecutive month, reaching 13.6%. This marks a 0.3 percentage point rise from the previous month and is the highest level since April 2020, early in the COVID-19 pandemic.

The outlook for the labor market was mixed.

While concerns about job loss have decreased, optimism about finding a new job has also declined.

The likelihood of losing a job in the next 12 months fell by 1 percentage point to 13.3%, below the 12-month average of 13.7%. The probability of voluntarily quitting a job also dropped from 20.7% in July to 19.1% in August. Furthermore, the likelihood of finding a new job if unemployed fell slightly by 0.2 percentage points to 52.3%, below the 12-month average of 53.9%.

The expected household income growth rose by 0.1 percentage points to 3.1%, while expected spending growth also ticked up by 0.1 percentage points to 5.0%.

Total consumer borrowing in July saw its largest increase since November 2022. The rise was driven by both revolving debt, such as unpaid credit card balances, and non-revolving debt, such as student loans. The Federal Reserve reported that total consumer borrowing, which includes bank loans, unpaid credit card balances, and auto loans, increased by $25.5 billion from the previous month.

This increase surpassed all expectations from Bloomberg’s survey of economists.

Revolving debt, which includes unpaid credit card balances, surged by $10.6 billion, marking the largest jump in five months. Non-revolving debt, such as auto loans and student loans, increased by $14.8 billion, the highest rise in over a year.

This increase in consumer borrowing appears to have significantly contributed to the growth in retail sales. July retail sales saw the biggest jump since early 2023.

The percentage of auto loans that were more than one month overdue also rose at the fastest rate since 2010.

New credit card delinquencies surged to 9.05%, the highest level in nearly 12 years.