The ability of US households to cover an unexpected $2,000 expense is at the lowest level in a decade, per the Fed.
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The Federal Reserve Bank of New York has reported that the ability of U.S. households to cover an unexpected $2,000 expense is currently at its lowest level in a decade. According to the latest survey of consumer expectations and credit access conducted every four months, only 65.8% of surveyed households stated they could come up with $2,000 if faced with an unexpected need within the next month. This marks the lowest level since the series commenced in 2013, down from the 2022 average reading of 67.5%.
Particularly concerning is the data regarding consumers aged 40 and younger, who reported the lowest likelihood of being able to cover a hypothetical $2,000 expense. Approximately 58% of this age group expressed confidence in managing it, reflecting a 10-percentage-point decline from 2020.
The New York Fed's findings underscore how the surge in the cost of living during the pandemic era is putting pressure on consumer credit. The survey revealed a notable increase in cardholders seeking credit limit hikes, rising to 17.8% last month from 11.2% a year earlier in 2022. This surge was most significant among individuals with credit scores well below the U.S. average.
Simultaneously, lenders have become more stringent, rejecting a higher number of credit applications. The New York Fed noted that reported average rejection rates for credit cards, auto loans, and mortgage loan refinancing applications in 2023 surpassed those in 2022. This year, around one in five credit card applications faced rejection, and the average rejection rate for mortgage refinance applications increased to 15.5%, up from 9.9% in 2022.
While the cost of credit has risen with the Federal Reserve's interest rate hikes, wealthier American households are increasingly turning away from loans. The survey indicated a decline in the share of respondents likely to apply for credit in the next 12 months, dropping to 25.1% last month from 28% a year earlier. This decrease was particularly notable among those with good credit ratings (scores between 680 and 760) and respondents aged 60 and older.
