Which balance sheet carries a 5.2 per cent spending plan on 3.0 per cent income?

Two numbers from one survey

The mean probability that the unemployment rate would be higher a year ahead rose to 44.4 per cent in the August Survey of Consumer Expectations, the highest reading since April 2020. The same households put the probability of losing their own job at 13.8 per cent, lower than the month before, and the probability of finding a new one after a job loss at 45.4 per cent, also lower. Fear of the labour market as a whole and fear for one's own desk are moving apart, and that gap is where a survey stops being a forecast and becomes a description of mood.^[1]

This is the second month I have read the same pair. The same mean probability stood at 42.8 per cent in the July survey, with expected spending growth at 4.9 per cent, and I argued then that both were beliefs and that turning the spending belief into demand needed income or credit. August widens the pair: median expected household spending growth rose to 5.2 per cent while median expected household income growth stayed at 3.0 per cent. A household cannot spend a belief. For the difference to be paid, somebody's balance sheet has to move.^{[1], [3]}

The gap is a fuel bill

Between 28 February and 8 September, US consumers spent an additional 100 billion dollars on fuel, 55 billion dollars of it on gasoline and 45 billion dollars on diesel, while Brent crude touched 99.46 dollars a barrel on Tuesday before falling back to 97.85 dollars. That money passes through the same budgets that now expect spending to grow 5.2 per cent on income growth of 3.0 per cent. Expected spending is measured in money, and money handed over at the pump at a higher price is spending. The expectation can rise without a single extra litre bought or a single extra hour worked.^{[1], [2]}

Goldman Sachs has warned that prices could exceed 120 dollars a barrel, while the same bank's base case has Brent back at 85 dollars by the end of the year. Nobody holds the odds on that range; it is uncertainty, and the household deciding what to expect to spend is guessing at the same unknown with less information and a tighter budget.^[2]

Where the adjustment shows up

The August survey also carries the answer. The mean probability of missing a minimum debt payment over the next three months rose to 13.2 per cent. Instead of revising the spending expectation down toward an income expectation stuck at 3.0 per cent, households raised the odds that a payment goes unmade. The household balance sheet is absorbing the price shock, and that is the cleanest reading the survey offers. Longer-horizon inflation expectations even eased, with the three-year measure down 0.1 percentage point to 3.2 per cent; a near-term squeeze can sit beside calm about the distant price level.^[1]

The payment is the signal to watch. If expected income growth stays at 3.0 per cent and the fuel bill does not fall, the mean probability of missing a minimum debt payment rises further in the monthly survey through the end of the year; the Survey of Consumer Expectations publishes the series that settles that claim. A rise there would move the fuel shock out of the territory of expectations and into the territory of arrears.^{[1], [2]}