Americans’ confidence in their finances is at its lowest level in the past 13 years, as inflation and fears of a recession cast uncertainty over the economy.
In February, just 31% of Americans thought their personal financial situation would improve in the next year, the lowest number in records dating back to 2010, according to Fannie Mae The monthly survey was released on Tuesday.
The proportion who expected their finances to deteriorate fell slightly to 20%, while the proportion who expected it to remain the same jumped to 48%, a new high in the survey.
The survey appears to reflect growing uncertainty about the labor market and key drivers of household net worth such as house prices and the stock market, as the Federal Reserve raises interest rates to fight persistent inflation.
The share of respondents who said they were worried about losing their job in the next year jumped to 24% from 18%, while the share who said they were not concerned fell to 73% from 82% the month before.
Americans’ confidence in their finances is at its lowest level in at least 13 years, as inflation and fears of a recession cast uncertainty over the economy (stock image)
In February, only 31% of Americans thought their personal financial situation would improve in the next year, the lowest number in records dating back to 2010.
Other findings showed that the percentage of respondents who said their family’s income was much lower than it was a year ago rose to 12% from 10% the previous month.
The percentage of respondents who said their family income is much higher than it was 12 months ago remained unchanged at 22%.
However, the share of consumers who said the economy is on the wrong track fell by two percentage points, to 71%. The share of those who said the economy is on the right track increased 2 percentage points, to 28%.
The monthly survey of 1,000 American adults found that sentiment around the housing market remains negative overall, as interest rate hikes by the Federal Reserve push mortgage rates higher and reduce homebuying activity.
The survey’s Home Buying Sentiment Index (HPSI) fell in February, breaking a streak of three consecutive monthly increases and bringing the index back closer to the survey’s all-time low set in October 2022.
“With home selling sentiment now lower than it was before the pandemic — and home buying sentiment remaining near an all-time low — consumers on both sides of the bargain appear to be cautious about the housing market,” said Doug Duncan, Fannie Mae. Senior Vice President and Chief Economist.
He added, “In addition, this month’s survey indicated an increase in job security concerns, which we will continue to monitor closely, as uncertainty in the labor market could play another factor in the slowdown in housing activity.”
The Home Buying Sentiment Index (HPSI), a combination of key sentiment factors in the housing market, fell in February
The share of consumers who say the economy is on the wrong track fell by two percentage points, to 71%. The percentage of those who say the economy is on the right track increased by two points, to 28%.
The Dow Jones index turned negative for 2023 after falling 574 points on Tuesday
Home equity and equity valuations are major determinants of household net worth, and are an important indicator of consumer sentiment and financial well-being.
American households lost more than $6.8 trillion in total net worth in the first nine months of 2022, largely due to sharp declines in the stock market, according to Federal Reserve data.
Household wealth fell by another $400 billion in the third quarter, to $143 trillion, marking the third consecutive quarterly decline according to the Fed report.
Through the first three quarters of the year, the stock market has lost more than $2 trillion in value, with the Dow Jones Industrial Average down 21 percent and the Standard & Poor’s 500 losing more than 25 percent of its value.
The resulting downturn in investment and retirement accounts has reduced household wealth, which has soared to new highs in 2021 thanks to government stimulus programs, high savings rates, and a bustling stock market.
Fears of persistent inflation, sending Fed interest rates higher for longer, have been the main factor in volatility in the housing market and on Wall Street this year.
On Tuesday, Wall Street’s major stock indexes fell after Federal Reserve Chairman Jerome Powell warned that “the final level of interest rates is likely to be higher than previously expected.”
Inflation and the Fed’s attempts to tame it by cooling the economy by raising interest rates have been at the heart of the sharp swings on Wall Street this year.
Household wealth (black line) fell by another $400 billion in the third quarter of 2022, to $143 trillion, marking the third consecutive quarterly decline.
A decline in equity holdings (“corporate equity” in blue) was the main driver of the decline in household net worth in the first three quarters
After appearing to be on a steady decline since last summer, reports on inflation came in surprisingly hot last month, along with strong jobs data and consumer spending showing slight weakness in demand.
He also said in his testimony that the Fed is ready to increase the pace of its increases again if necessary.
That would be a sharp turnaround after it just slowed the pace of its increases to 0.25 percentage points last month from previous rate hikes of 0.50 and 0.75 points.
“If the aggregate data indicates that a faster tightening is warranted, then we would be prepared to increase the pace of rate hikes,” Powell said. Restoring price stability is likely to require that we maintain a conservative monetary policy stance for some time.
“With markets fully focused on Fed Chair Powell’s remarks today, it didn’t take long to deliver the goods,” noted Jesse Wheeler, an economist at decision intelligence firm Morning Consult.
“After Powell’s hawkish remarks, all eyes will be on Friday’s BLS jobs report, as investors look for any signs that the labor market may be calming, which could allow the Federal Reserve to soften its stance somewhat,” Wheeler added.