With much debate centering on whether or not the economy will be strong enough for the Federal Reserve to raise the federal funds target rate in September, the New York Fed reported that household spending growth expectations have dropped off substantially.
In the July 2015 Survey of Consumer Expectations (SCE) released on Monday, the New York Fed said that earnings and income expectations per household were largely unchanged from the previous survey, but household spending growth expectations had fallen to an all-time low since the survey's inception in June 2013.
The findings by the New York Fed in July's SCE came on the heels of the Bureau of Labor Statistics July 2015 Employment Summary released Friday, which reported job gains of 215,000 for July and a monthly average of 246,000 for the previous 12 months. Wage growth has stalled, however, with average hourly earnings rising by only 2.1 percent in the last year up to $24.99. While some economists felt this should constitute the improvements in the labor market that the Fed was looking for before deciding to raise rates, some disagreed. In the New York Fed's survey, median one-year ahead earnings growth expectations declined by 0.1 percentage points down to 2.4 percent; the decline was more pronounced among low-education and low-income respondents, however.
The median expectation for one-year ahead household income growth was at 2.7 percent in the Fed's July SCE, which was a decline of 0.15 percentage points from the previous month. Still, it was 0.5 percentage points ahead of July 2014's pace. Household spending growth expectations experienced a sharp dropoff, however, falling by 0.8 percentage points down to 3.5 percent – the lowest since the survey began slightly more than two years ago. According to the New York Fed, the decline was even more pronounced for survey respondents who were over 40 as well as respondents in the lower education category.
"While the perceived change in credit availability compared to a year ago remained essentially unchanged, the year-ahead credit availability expectations became slightly more pessimistic in July," the report stated. "Those expecting it to be harder to obtain credit in a year increased from 28.2 percent to 32.0 percent."
Meanwhile, median home price inflation expectations fell from 3.5 percent in June to 3.2 percent in July, continuing a downward trend. It is the second lowest monthly total for the SCE since it began in June 2013. According to the New York Fed, the decline was particularly noticeable among respondents older than 60.
The latest SCE's indication of a sharp decline in expectation for consumer spending falls right in line with Fannie Mae's July 2015 Housing Survey released last week, in which consumers generally expressed less optimism about selling their homes amid recent economic uncertainty despite other recent positive metrics for the housing market. In the Fannie Mae survey, the share of respondents who said the economy is on the wrong track increased while the share who said they expect their personal finances to improve in the next 12 months declined.
Click here to see the entire July 2015 Survey of Consumer Expectations released by the New York Fed on Monday.