Page 10 - Demo

10 NBIZ %u25a0 DECEMBER 2024 Other Financial Stress Indicators Appear ElevatedHave other indicators of financial stress also remained elevated? Responses regarding difficulty paying expenses, insufficient food, rent arrears, and the likelihood of eviction cover a longer period than the inflation stress and concern data. Focusing on the common data period beginning in third quarter 2022 and through third quarter 2024, we see little change in the share of households reporting that they find paying expenses very difficult or often do not have enough food (Chart 4, Panel A).%u00a0 Income Remains Most Important Stress Determinant Almost all households reported a small decline in inflation stress and concern. Nevertheless, the patterns of stress and concern with respect to income, housing tenure and household size, for example, resemble what we previously reported using earlier Household Pulse Survey data. Inflation stress and concern are highly correlated with income%u2014those with the lowest annual household incomes are the most stressed and concerned, whereas those with the highest incomes are least stressed. This suggests the burden of high inflation disproportionately affected the most vulnerable households (Chart 5, Panel A). We estimated logit models to statistically assess the probability of a household relating high-inflation stress and concern (the %u201cvery stressful%u201d or %u201cvery concerned%u201d responses) to a set of potential determinants, including age, sex, marital status, household size, housing tenure, education and income. Household income was by far the most important determinant of high-inflation stress and concern during the period studied, the second and third quarters of 2024.Using the logit model results, we also calculated the marginal, or ceteris paribus, effects of income that provide an estimate of how the incidence of high-inflation stress varies as household income changes, holding factors such as household size, housing tenure, race and ethnicity constant. (The marginal effects of income on inflation stress are the red bars in Chart 5 Panel B, whereas the blue bars are the raw effects from Panel A, using the level of stress of households with $75,000 to $100,000 annual income as a baseline.)Very little of the variation in high-inflation stress (or concern) by income group is explained by factors other than income. For every income band, the raw effect of income (blue bars) and the marginal effect of income on its own (red bars), holding other factors fixed, are almost identical. Higher Inflation Stress, Concern Greater in TexasWe previously noted that Texas is among states feeling most stressed by inflation. Although, inflation stress and concern levels in the state have declined since 2022, they remain considerably higher in Texas than in most other states (Chart 6, Panel A). Texas placed eighth for high-inflation stress and was 15th for inflation concern in third quarter 2024. Texas has always shown up among the top 10 states for inflation stress by quarter.The share of households that reported finding it very difficult to pay expenses is also higher in Texas than in most other states (Chart 6, Panel B). Texas was the fifth-highest state among such households in third quarter 2024.The higher level of inflation stress and concern in Texas reflects a greater prevalence of low- and moderate-income households, large households, renters and Hispanic households in Texas relative to the rest of the country.Other things equal, these groups experience relatively greater financial stress, explaining why the state%u2019s inflation stress and concern levels are comparatively high. NAnthony Murphy is a vice president in the Research Department of the Federal Reserve Bank of Dallas. Isha Parmar was an intern in the Research Department at the Federal Reserve Bank of Dallas.