Consumers May Pull In Spending as Outlook for Credit Access Dims

Credit is harder to come by.

And that means a lifeline for consumers — and the businesses reliant upon them — is not as dependable as it one was.

To that end, the Federal Reserve of New York’s March Survey of Consumer Expectations found that U.S. consumers are  less sanguine about their ability to obtain credit than they have been in almost a decade.

And they expect inflation, in a year’s time, will only increase.

The expectations, we contend, signal some pressure ahead.  If consumers think that they won’t be able to buy things now, or over the near term and, essentially, pay for them later, and they think daily life is going to get more expensive, there are only a few levers to pull.

On the one hand, they may access the credit they can get now, in a bid to have some “dry powder” at hand to help them navigate inflation they expect to battle down the road.

Or they can opt to pull in their spending, overall.

The share of households that said credit is harder to get than it was only a year ago stood at  58.2%, the highest ever reading. We note that the Fed data stretches back a decade. At the same time, the Fed reported that the “average perceived probability” of missing a minimum debt payment over the next three months increased by 0.3% to 10.9% in March, though the Fed noted that this data point remains below its 12-month trailing average of 11.4%.

Inflation to Outpace Income Growth

The median inflation expectations stand at 4.7% — up for the first time since October of last year. That outpaces the median expectation of household income growth, which stands at 3.3%.

As the old song says, something’s got to give.

As PYMNTS data have found, the use of credit has become somewhat of a juggling act. As many as 27% of U.S. consumers pulled money from their savings to manage credit card debt. There’s an active pivot underway in how consumers are managing debt even if they do not live paycheck to paycheck, which in turn includes the consumers who ostensibly have the most leeway when it comes to spending — and that signals some pressures ahead for merchants. Within the “non-paycheck to paycheck” designation, 26.1% said they’d been budgeting, 23% said they’d spent less and 9.3% said that they’d used the cards less often.

Nearly 4 in 10 (38.3%) consumers living paycheck to paycheck with issues paying bills have already pulled money from their savings or investments to help manage their credit card debt load, while 50% have cut down on everyday pleasures.

Separately, roughly half of consumers have shifted their choice of merchants, opting to go where prices are cheaper. We found that about two-thirds of consumers consider price when deciding on a “go-to” large retailer. With a bit more granular insight, 56% of retail shoppers and 47% of grocery shoppers have relayed to PYMNTS they have switched some of their spending to less expensive brands.