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Economic Outlook: Consumer Confidence and The Fed

shutterstock_635375276The Federal Reserve Bank of New York recently released results from its September 2017 Survey of Consumer Expectations, which showed overall increases in pessimism.

Specifically, the survey found that expectations about earnings, spending, income growth, home prices, financial situations and the stock market all “deteriorated.”

The fraction of respondents who believe they are financially better off declined compared to last year to 32.3 percent, while the proportion of respondents who expect being better off financially a year from now declined to 40.3 percent.

The mean perceived probability that U.S. stock prices will be higher 12 months from now also fell from its August level of 43.1 percent to 42 percent.

Median home price change expectancies fell to 3 percent its lowest level since March 2016. In addition, median expected household income growth fell from 2.7 percent in August to 2.2 percent; the lowest level recorded since February 2014 and well below the series high of 3 percent in July 2017, according to the survey results.

Additionally, “the average perceived probability of missing a minimum debt payment over the next three months increased for the third month in a row,” from 12 percent in June, to 13.4 percent in September.

As consumer’s hope in the economy dwindles, the Fed’s expectations might be different. The Federal Reserve Board and the Federal Open Market Committee (FOMC) recently released its minutes of the Committee meeting held on September 19-20, 2017.

In the latest FOMC minutes, the Fed indicated that an interest rate hike later in 2017 is likely, even with low inflation. However, Federal Reserve officials see the economy expanding at a steady pace.

The meeting also shows members anticipating that the factors slowing down inflation will pass. The expectation is that inflation will hit the 2 percent target the central bank believes is consistent with healthy growth.

Housing updates included, “interest rates on 30-year fixed-rate residential mortgages moved lower over the intermeeting period, in line with comparable-maturity Treasury yields.” While growth in mortgage lending for home purchases “picked up in July and August compared with its pace over the second quarter.” However, credit conditions remained tight for borrowers with low credit scores or hard-to-document incomes.

The Fed also discussed recent information on housing activity, which suggests that real residential investment spending was decreasing in the third quarter after declining in the second quarter. Therefore, “starts for new single-family homes edged down, on net, in July and August, and starts for multifamily units moved lower in both months.”

Building permits issuance for new single-family homes—which tends to be a good indicator of the underlying trend in construction—declined in July and August.

To view the whole summary of FOMC minutes, click here.

About Author: Nicole Casperson

Nicole Casperson is the Associate Editor of DS News and MReport. She graduated from Texas Tech University where she received her M.A. in Mass Communications and her B.A. in Journalism. Casperson previously worked as a graduate teaching instructor at Texas Tech's College of Media and Communications. Her thesis will be published by the International Communication Association this fall. To contact Casperson, e-mail: nicole.casperson@thefivestar.com.

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