Credit Sesame’s personal finance weekly news roundup January 21, 2023. Stories, news, politics and events impacting the personal finance sector during the last week.
- Consumer optimism crashing around the world
- 2023 economy might be tough on fintech lenders
- Consumer spending up moderately in December 2022
- Survey shows household spending up but slowing
- Producer prices reflect slowing inflation trend
- High-stakes gamble over debt ceiling reaches crisis point
- CFPB offers guidance on consumer subscription practices
- Mortgage rates continue early-2023 downward trend
1. Consumer optimism crashing around the world
A global survey of consumer feelings about household wealth showed a huge drop in optimism over the past year. The Edelman Trust Barometer found that financial optimism had fallen to an all-time low in 24 of 28 countries surveyed. The survey has been conducted for over two decades. Overall, the percentage of respondents who expect their families to be better off in five years dropped to 40%. Last year it was 50%. In the United States, just 36% of survey respondents were confident that their families would be better off in five years. See full article at Reuters.com.
2. 2023 economy might be tough on fintech lenders
In recent years, some fintech lenders have carved out a niche for themselves by using new underwriting techniques that allow them to make loans to borrowers who would have trouble qualifying with a traditional lender. However, financial analytics firm Moody’s warns that this new wave of lenders might have an especially hard time over the coming year. The prospect of growing consumer defaults in a recession is making investors more cautious about financing such firms. This caution is raising the cost of capital for these fintech lenders. The combination of higher costs and rising defaults could jeopardize the profitability of the high-risk lending business model. See full article at Reuters.com.
3. Consumer spending up moderately in December 2022
Compared with the prior year, consumer spending rose slightly faster than inflation in December. The Mastercard SpendingPulse report found that year-over-year consumer spending was up by 7.4% in December. In a normal year that would be a solid rate of increase, but it was just 0.9% more than 2022’s 6.5% inflation rate. E-commerce sales growth outpaced in-store sales growth, 9.7% to 6.7%. The leading growth category was restaurants, with a 14.5% year-over-year spending increase. See release from Mastercard.com.
4. Survey shows household spending up but slowing
While year-over-year consumer spending continues to increase, it is now growing at a slower rate. The Federal Reserve Bank of New York’s Survey of Consumer Expectations Household Spending Survey found that the median increase in year-over-year spending was 7.7% as of December of 2022. That represents a slowdown from the peak year-over-year increase of 9.0% in August of last year. Further, household spending is expected to slow even more in the year ahead. The median increase in household spending expected over the next 12 months is just 4.0%. The sharpest decrease in spending expectations was found in households earning over $100,000 a year. See full release at NewYorkFed.org.
5. Producer prices reflect slowing inflation trend
While consumer prices most directly affect household spending, pricing from the standpoint of producers of goods and services can ultimately impact what consumers are charged. That’s why a 0.5% drop in the Producer Price Index (PPI) during December is good news on the anti-inflation front. This drop was primarily due to a 7.9% decline in the energy component of the PPI. There was also a 1.2% decline in the food component of the index. Even excluding the food and energy sectors, the remainder of the PPI was up just a modest 0.2% in December. See full report at BLS.gov.
6. High-stakes gamble over debt ceiling reaches crisis point
A showdown between Congress and the Biden Administration continued as the United States reached its debt ceiling. This prevents the government from further borrowing to fund its operations. Because the federal government has run a deficit every year since 2001, borrowing is necessary to support government programs ranging from defense to Social Security. According to Treasury Secretary Janet Yellen, there are extraordinary measures the government can take to pay the bills temporarily, but before long they would be forced to default if the debt ceiling is not raised. This could result in a suspension of federal benefits and other programs, higher borrowing costs and possible investor panic. On the other hand, politicians holding up the increase in the debt ceiling are seeking reductions in government spending. See full article at CNBC.com.
7. CFPB offers guidance on consumer subscription practices
The Consumer Financial Protection Bureau (CFPB) issued guidance reminding subscription services that it is illegal to trick consumers into automatically renewing their subscriptions. The CFPB said that subscription services must: 1) clearly disclose that a subscription will renew automatically unless the consumer cancels; 2) obtain clear and informed consent from consumers that they agree to automatic renewal; and 3) not engage in practices that make it unreasonably difficult for a consumer to cancel a subscription. See CFPB statement at ConsumerFinance.gov.
8. Mortgage rates continue early-2023 downward trend
After more than doubling in 2022, mortgage rates continued to trend lower in January of 2023. Both 15-year and 30-year mortgage rates fell in two of the first three weeks of the new year. Last week 30-year rates dropped by 18 basis points, to 6.15%. That marks the lowest level those rates have been since September. See full release at FreddieMac.com.