U.S. Unemployment Concerns Rise as Household Debt Hits Record High—What’s Next for the Fed?

Deep News
Dec 25, 2025

The December report from the University of Michigan’s Consumer Sentiment Survey reveals that 63% of respondents expect unemployment to rise further next year.

As 2025 draws to a close, the U.S. labor market has settled into a "no firing, no hiring" equilibrium. Multiple surveys indicate that job security has become a top concern for American workers heading into the new year. Compounding the issue, record-high household debt is complicating the Federal Reserve’s monetary policy decisions.

**Growing Job Security Risks** A recent Mercer survey highlights that job stability has emerged as the second-biggest worry for U.S. workers, trailing only "covering monthly living expenses." Over the past three years, "paying monthly bills" consistently ranked as the primary concern, while fears of unemployment surged from seventh place in 2023 to second in 2025—tying with "achieving retirement goals" and "maintaining work-life balance."

This disconnect between workers’ perceptions and macroeconomic data was further underscored by Tuesday’s GDP report, which showed a 4.3% year-over-year growth for Q3 (pre-government shutdown). Sean Connelly, Mercer’s U.S. and Canada lead for total rewards research, noted, "While macro indicators may look strong, people aren’t feeling it. Every grocery bill shock adds to their financial stress."

Despite overall consumer spending growth in Q3, Moody’s Analytics Chief Economist Mark Zandi found that the top 10% income earners now account for half of all spending. His October report warned that 22 U.S. states are in recession, with another 13 stagnating.

Connelly added that persistent inflation and market volatility have amplified economic uncertainty, leading workers to question their employers’ resilience: "Looking at the economy and my company, I wonder—can we survive and grow?" He predicts macroeconomic pressures will continue weighing on households through 2026.

Once, U.S. workers prioritized mental and physical health over financial worries. In Mercer’s 2021 survey, job security ranked tenth, and monthly expenses ninth. But since inflation spiked, hiring stalled, and AI disrupted traditional jobs, economic anxieties now dominate.

The Labor Department reported November unemployment rose to 4.6%, a four-year high, with job gains concentrated in healthcare. A Conference Board survey on December 23 found consumers’ labor market outlook "more negative," with more respondents calling their finances "bad" than "good."

Meanwhile, the University of Michigan’s survey showed 63% expect higher unemployment in 2026. Wallet pressures drove consumer sentiment down nearly 30% year-over-year in 2025’s final reading.

**Household Debt at Record Levels** U.S. household debt hit $18.6 trillion in Q3 2025. The Fed’s December meeting signaled higher hurdles for 2026 rate cuts, potentially denying debt-laden Americans much-needed relief. Markets now anticipate just one or two cuts next year for modest borrowing cost relief.

Matt Shultz, LendingTree’s chief credit analyst, advised, "Regardless of economic shifts, people have more control over debt than they think—consider balance-transfer cards, consolidation loans, or credit counseling."

The New York Fed’s Household Debt Report showed mortgages dominated Q3’s $13.07 trillion debt pile. Non-housing debt rose 1%, with credit card balances at $1.23 trillion and auto loans at $1.66 trillion.

TransUnion’s 2026 Consumer Credit Outlook predicts auto loan defaults will rise for a fifth straight year (though more slowly), while credit card defaults stabilize. Mortgage delinquencies may edge up slightly due to higher unemployment.

Notably, credit markets reflect a "K-shaped" recovery: affluent households benefit from stocks and home equity, masking lower-income struggles.

Warren Cohenfeld, Moody’s senior VP, said lenders tightened standards as inflation hit lower-income families hardest. 2026’s job market will dictate credit accessibility—if layoffs stay contained, standards may hold. "But if macro conditions worsen," he warned, "further tightening is inevitable."

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