Growing Unease About Debts in the U.S.

The Federal Reserve Bank of New York recently released a report that suggests U.S. consumers may be feeling more uneasy about their debts. This report examines Americans’ recent spending habits and their plans for future spending.

Allocating Income Increase towards Debt

The report includes a survey that asks individuals how they would allocate an unexpected 10% increase in their income. Surprisingly, an average of 38% of households stated that they would use the extra money to pay down debt rather than spending or saving it. This represents an increase of nearly 5 percentage points from the previous year, and it is the highest percentage since 2016. On the other hand, only 16% of respondents indicated that they would spend or donate the additional funds, which is the lowest percentage recorded since the data has been tracked by the Fed.

Concerns About Debt Balances in the U.S.

American consumers have been accumulating significant debt balances in recent times, with consumer credit-card debt reaching record highs. The growing popularity of buy-now-pay-later services during the holiday season has raised concerns that unreported debt may be impacting Americans’ finances, potentially without being documented on their credit reports. Total consumer credit, which serves as a measure of borrowed money, surpassed $5 trillion for the first time in November. This worrying trend has prompted experts such as Sheila Bair, former head of the Federal Deposit Insurance Corp., to express concerns about the situation.

Additional Insights from the Data

The New York Fed’s report also reveals other noteworthy insights about household spending. It indicates that spending continued to moderate towards the end of 2023. Although spending growth remains above pre-pandemic levels, it has experienced a declining trend in recent months.

Furthermore, expectations of growth in household spending for the year ahead reached their lowest level since December 2020, according to the report. Survey respondents expressed a decreased likelihood of making major purchases such as home appliances, furniture, or home repairs in the next four months. However, there was an indication of an increased interest in purchasing homes compared to the data collected in August.