Fed Survey Illustrates Consumer Uncertainty Over Direction of Economy

In yet another sign of the uncertainty that many people are facing these days, more consumers expect to not be able to make a minimum debt payment in the next three months, but fewer people believe they will be much worse off, financially, a year from now, according to data that was released this week by the Federal Reserve Bank of New York.

The bank released its regulation Survey of Consumer Expectations and the data illustrates that many people are not sure whether things are going to get better or worse during 2022. For example, 10.3% of people who participated in the survey said they expect not to be able to make a minimum debt payment over the next three months, up from 10% a month earlier. But at the same time, 4.8% of people said they expect their financial situations to be “much worse off” a year from now, down from 6.3% who said that a month earlier.

When looking at the demographic breakdown on the question of whether they will not be able to make a minimum debt payment during the next three months, the increase appeared to come from consumers who have “some college” experience, compared with those who have a BA or higher or those who have a high school diploma or less.

While people remain unsure about their financial situations, more of them do continue to believe that their household incomes will continue to grow during the next year. On average, people are expecting their incomes to grow 3.4% during the next year, which marks an all-time high for the data point, dating back to 2013.

What does this mean for the ARM industry? Data like this can be helpful in building forecasting models for collection and recovery rates, while also providing context and perspective to collectors who are on the phone with the very consumers who aren’t sure what’s going to happen during the next 12 months. If people think the economy is getting better, they might be more inclined to make payments on their debts. If they think the economy is going to get worse, they are likely to want to keep their money in case it’s needed down the line.

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