“You think your pain and your heartbreak are unprecedented in the history of the world, but then you read. It was Dostoyevsky and Dickens who taught me that the things that tormented me most were the very things that connected me with all the people who were alive, or who ever had been alive.”
James Baldwin, the legendary American writer, had this to say in a May 1963 profile in LIFE magazine. His words will resonate with anyone who has ever been caught in the throes of a novel, immersed in its world and the characters on the page. Baldwin, who passed away in 1987, would likely be troubled by the ongoing decline in reading as a pastime. Published in August, a landmark study from the University of Florida and University College London found that daily reading for pleasure dropped by more than 40% in the U.S. from 2003 to 2023. If it’s been a while since you’ve cozied up with a good book, we cannot recommend Baldwin’s novels enough, and envy anyone getting to experience his powerful prose for the first time.
A good book might also help many consumers feel less isolated in their current economic woes. Release after release of the University of Michigan’s (UMich) survey data reiterates the uncertainty that Americans feel regarding the state of the economy and their own financial security. November’s preliminary results saw headline sentiment fall 6% to 50.3, “led by a 17% drop in current personal finances and a 11% decline in year-ahead expected business conditions.” The result underwhelmed the 53.0 consensus and was the second lowest on record after June 2022’s 50.0, when inflation anxiety was at its peak.
UMich asks survey participants to describe their views on both current and expected business conditions, and the combination of the two produces their perspective on the trend. Respondents who 1) see today as worse than last year and 2) predict next year will be worse than today, are characterized as seeing business conditions in “Continuous Decline.” This gauge spiked to 50% for the first time in March of this year, and November’s 62% marked a record high, more than four times the 15% average from 2010-2019 (pink line). Contrast this with the subdued 30% consensus recession probability from economists, a record divergence that either suggests consumers are in hysterics or recession risk is underpriced.
Our money is on the latter, in light of the weakness manifest in the labor market. Though we’ve gone two months without an official jobs report, alternative sources give ample evidence of consumers’ angst. LinkUp’s “Daily 10,000” captures job openings from 10,000 global employers, and the monthly average of this real-time gauge continues to show opportunities drying up (fuchsia line). November’s average-to-date of 2.505 million is down from October’s 2.563 million and more than a third off its March 2022 peak of 3.9 million. Tellingly, the prevailing level is also lower than the 2.539 million registered in January 2020, as the economy was veering into a recession accelerated by and subsequently arrested by a global pandemic. The weakening lines up with New York Federal Reserve Job Finding Expectations, which gauge the mean probability of finding a new job in the next three months. October’s 46.77% improved slightly from August’s record low of 44.91% (purple line). Nevertheless, it’s on par with the 46.95% registered in April 2020, at the height of the COVID shutdown.
We noted in Saturday’s Intelligence Briefing that consumers have shifted their fears about rising joblessness from the government towards the private sector, as Higher Unemployment Expectations (HUE) rose 7 points to 71%, the second-highest on record, while Bad News Heard about Government declined. On a z-score basis, year-ahead HUE’s current 3.34 print takes out the GFC peak of 3.16, registered in November/December 2008 and February 2009 (orange line). The same can’t be said for the longer-term 5-year view, but its 2.34-print only has precedents in the COVID shutdown, the GFC, and the early 2000s, amidst the Iraq War and the aftermath of the dot-com bubble bursting (green line).
Heightened fears of job loss and a subsequent negative income shock should keep the pressure on spending. Tightening lending standards will amplify this effect. On a real basis, revolving credit declined for the first time since the pandemic in August and slipped to -0.51% YoY in September (aqua line). History dictates that there’s further to fall: in November 2008, when 1-year HUE first printed at a 3.16 z-score, real revolving credit was treading water at 0.61% YoY. A year later, it was declining by double digits.
It’s not just unemployment fears that are elevated. So too, have anxieties risen about being able to meet one’s debt obligations. The New York Fed’s Survey of Consumers gauges the mean probability of not making a minimum debt payment in the next three months. When segmenting by educational attainment, those with “Some College” are the most concerned; they registered a 0.92 z-score print in October (red line), followed by “College Degree” (0.48, blue line) and “High School or Less” (0.20, yellow line). Notably, all three cohorts are in positive territory, something seen in less than 15% of months in data to 2015. That puts an exclamation point on 2025, as it’s happened in half of the year’s ten months.
Household angst is warranted. The NY Fed’s Q3 Household Debt and Credit Report revealed that the percentage of balances classified as seriously delinquent (90+ days) hit a cycle high for auto loans (5.02%) and credit cards (12.41%). Equifax’s Tom O’Neil corroborated the survey data in its latest Market Pulse Report: “We are seeing a more pronounced rise in delinquency rates for newer auto loans, defined as loans taken in the last 24 months, within the near-prime and prime populations. This indicates that some economic stresses that some consumers are facing aren’t confined to the lower credit tiers (bolding ours).” Car payments, or any debt payments for that matter, are much harder to make without a paycheck. Unfortunately for the workers shifting into overdrive to prove their worth and keep the job they still have, they’ve got less time to tune out their fears and lose themselves in the pages of a book.