Consumers are expecting higher inflation and feeling less confident about their jobs while early signs are starting to show those pressures are already surfacing in loan performance. New data from the Federal Reserve Bank of New York’s Survey of Consumer Expectations and delinquency figures from the auto finance market both point to growing stress among lower-income households.
Why it matters: These trends suggest that the balance between repayment capacity and financial pressure is tightening. Households are bracing for higher costs and fewer job opportunities, while delinquencies in high-risk lending segments, such as subprime auto loans, are already climbing.
By the numbers:
- Median one-year-ahead inflation expectations rose to 3.4%, up from 3.2% in August, while five-year expectations increased to 3.0%.
- Consumers expect food prices to rise 5.8% and medical costs 9.3% over the next year. Both of those are near multi-year highs.
- Median expected earnings growth fell to 2.4%, the lowest since 2021.
- The perceived probability of losing one’s job climbed to 14.9%, while the chance of finding a new job after a layoff remained below its 12-month average.
- Meanwhile, the percentage of subprime auto loans that are 60 days or more delinquent has reached a record high above 6%, according to Fitch Ratings.
Connecting the dots: The rise in subprime delinquencies reflects the same pressures captured in the Fed’s survey: higher prices, slowing wage growth, and a weakening sense of financial stability. Borrowers who stretched their budgets to afford cars at pandemic-era prices are now struggling as rates remain high and wages fail to keep pace.
“These are borrowers who may have stretched their budgets to afford a higher price of the asset, as well as a higher payment because of the interest rate,” said Joelle Scally, an economic policy adviser at the New York Fed.
Repossession activity also jumped, with an estimated 1.7 million vehicles repossessed last year, the most since 2009. Although delinquencies have leveled off in recent months, they remain well above pre-pandemic levels.
The big picture: Inflation expectations are rising most sharply among households earning under $50,000, which is the same group where repayment stress is highest. While the overall probability of missing a debt payment ticked lower in the Fed’s survey to 12.6%, that improvement may not hold if labor conditions continue to weaken.
What’s next:
