Essential Economics

— Mark Frears 

Report card 

Do you remember your GPA in high school? Was it a big deal then? Probably, but not so much now. When we looked back at some of my old reports, the consistent theme was that I was reading too much. Some things don’t change! The other “old school” practice was that you had to bring your report card home, for the parents to view and sign. Amazingly, some kids’ evaluations never made it home.

How does the report card look on the U.S. consumer? Are they making the expected grades? Let’s take a look.

Survey Says 

The Federal Reserve Bank of New York’s Center for Microeconomic Data published their February 2025 Survey of Consumer Expectations (SCE), and the outlook is less rosy than the prior month. There are three parts to the survey: reading, writing and arithmetic. No, sorry: inflation, labor market and household finance.

On the inflation expectations, they are looking out one, three and five years, with all three hovering around 3%. As far as inflation uncertainty, this increases across all three timeframes. Interestingly, as seen below, the uncertainty is highest in the younger age brackets.

If we look at the labor market and specifically the ability to find another job, we can see the dispersion by income level below.

As you can see, the higher your income bracket, the better you feel about finding a new job in the next three months if you lose your job today. This has been true going back to the pandemic.

There is more discussion about consumers not being able to make ends meet, especially at the lower end of the income spectrum. As you can see below, households with under $50,000 income have a 20% probability of not being able to make minimum debt payments over the next three months
 

All three income levels see increasing odds of missing a payment. Not a good grade in this area.

Deeper dive

The stress on the consumer is real. When your fixed expenses take up more and more of your budget, you have to resort to credit cards. As seen below, credit card interest is running above levels seen during the Great Recession. 

Taking this to a broader picture, we see below that stress on the consumer budget is running higher than any time since the mid-1980s. This trend cannot continue.

As you would expect, this is flowing through to non-payments. The charts below show the impact on credit cards and auto loans.

While the SCE only shows minor stress for the consumer, if you look under the surface, C and D grades could be on the report card next semester.

Economic releases

Last week saw inflation metrics come in lower than expected, but the consumer sentiment shows future rates are going higher, and it is impacting their outlook.

This week’s calendar has retail sales, housing starts, building permits, leading index and existing home sales. In spite of those releases, the focus will be on the FOMC meeting ending on Wednesday. We will also get updated Summary of Economic Projections and the Dot Plot. See below for more detail.