One in Five Consumers Worry About Making Their Monthly Payments

GALLUP NEWS SERVICE

PRINCETON, NJ -- Last week, the Federal Open Market Committee (FOMC) increased its benchmark interest rate a quarter point to 4.75%. It was the FOMC's 15th consecutive rate increase. At the same time, the housing market shows signs of slowing and prices seem to be stabilizing. The question for policymakers is whether these three factors will combine to slow consumer borrowing and consumer spending. Of course, the Commerce Department reported last Friday that consumer spending rose only 0.1% during February, after increasing 0.8% in January.

In this regard, the increases in consumer confidence registered by both the Conference Board's Index and that of the University of Michigan during March would suggest another increase in spending during the months ahead. In sharp contrast, however, the new Experian/Gallup Personal Credit Index (PCI) survey designed to provide a "window" into consumer credit perceptions/intentions fell back to its January level. It also shows only 15% of consumers saying now is a good time to borrow, with 19% saying they are worried about making their monthly payments. The new PCI survey was conducted March 17-23, just before the most recent FOMC meeting.

The Personal Credit Index Declines

Consumers became more negative about their credit situations this past month, as the PCI declined by nine points to 84. This puts the PCI at the essentially same level as in February of this year (85) and April of last year (82). The two greatest areas of deterioration in the current PCI were those involving whether now is a good time to borrow and whether consumers are worried about being able to make their monthly payments.

The decline comes equally from concerns about the present and future. The Present Situation Index declined by four points, to 36, while the Future Situation Index declined by five points, to 48.

Not a Good Time to Borrow

Only 15% of consumers say now is a good time to borrow more money -- tied for the lowest percentage to date. This is down from 20% who said it was a good time to borrow a month ago and from 24% of consumers who said this a year ago. Only 4% say now is a very good time to borrow, down from 10% a year ago. Since Gallup first asked the question just over a year ago, the highest percentage of consumers saying this is a good time to borrow is 27%.

Worried About Making Monthly Payments

Nineteen percent of consumers say they are either very (9%) or somewhat (10%) worried about keeping up with their monthly payments. Although the number of worried consumers is up only one percentage point from the previous month and is essentially the same as a year ago, the percentage very worried almost doubled this month, moving from 5% to 9%. Thirty percent of consumers having annual incomes of less than $40,000 report being worried about making their monthly payments.

Bad News for Retail Sales

The recent Fed increase in interest rates, the expectation that there will be another rate increase, and the normalization of the yield curve (longer maturities have higher rates of return) can only further dim consumer borrowing intentions in the months ahead. Higher interest rates discourage new borrowing by raising not only the consumer's cost, but also the monthly payment required on a loan. Of course, higher rates will also worsen the current slowdown in the housing sector, and increase borrowing costs for consumers using variable-rate credit.

Add gas prices at the pump that are averaging $2.50 a gallon and the potential for even higher prices as we head into the summer driving season, and it seems likely that the recent increases in consumer confidence reported for March are already well out of date. So are the expectations of those anticipating a significant increase in consumer spending, given today's economic conditions. In fact, the late March drop in the PCI suggests just the opposite: a difficult time for the nation's retailers as consumer borrowing and spending slow.

Survey Methods

Results for the Experian/Gallup Personal Credit Index poll are based on telephone interviews with 1,004 adults, aged 18 and older, conducted March 17-23, 2006. For results based on the total sample of investors, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.