Delving Into Consumers’ Minds

The Federal Reserve Bank of New York’s Center for Microeconomic Data released its September 2018 Survey of Consumer Expectations. The survey indicates there is no little to change in expectations regarding inflation in the short- or medium-term. Labor market expectations improved, however, with earnings growth expectations increasing and household fears of unemployment on the decline. But expectations about household income and spending growth are both on the decline too.   

Regarding inflation, expectations for both the one-year and the three-year remain stable at 3.0 percent. Inflation expectations have been relatively flat since April 2018. The number of those expecting inflation decreased in comparison to last month, but not significantly so. Median home prices are also believed to have held steady in September at 3.6 percent. This follows a decline over the preceding two months from 4.9 percent in June, a three-year high. Uncertainty regarding home price fluctuations also held flat.

Labor market expectations show growth up by 0.3 percent in September—the highest the series has yet reached since the survey began. This increase is credited to survey respondents making between $50,000 and $100,000. Mean unemployment expectations concerning the year ahead decreased 1.2 percent, to 34.1 percent and closer to the 2018 average of 34.0 percent. The mean probability of losing one’s job increased to 16.0 from 13.8 percent—the highest it has been since August 2016—but the mean perceived probability of finding a job if one’s current job is lost also increased to 59.3 percent, up from 57.8 percent in August. This brings expectations which track this metric above its 12-month average of 58.9 percent.

Regarding household finance, the median expected household income growth has shrunk slightly, down a fraction (0.3) percent to 2.5 percent, its lowest level this year. The drop was most noticeable among respondents above 60 years old and possessing an annual income below $100,000. Spending growth expectations for median households continued its three-month trend of declines, falling from 3.2 percent to 2.9 percent in September to bring it below its 2018 average of 3.1 percent.

Overall, those who believe their current financial situation has improved has also declined, with those feeling that they are better off than they were a year ago falling to 34.9 percent, a decrease of 2.4 percentage points—its lowest level since October 2017. Those who expect their financial situation to get worse in the coming year also increased 1.1 percent to 12.0 percent. The percentage of respondents who believe credit standards have grown laxer has also increased 0.8 percent, while those who believe it will get harder to get in the next year went up 0.6 percent. Those who fear missing a minimum debt payment in the next three months also went up 0.9 percent, hitting 13.7 percent, the survey’s high since January 2017. This rise in fears was fueled by respondents who make less than $50,000 a year and have no college degree.