What The NY Fed's Survey Of Consumer Expectations Just Told Us About Inflation

These days, it seems like the post-pandemic economy for the U.S. has centered entirely on inflation. From grocery prices rising 25% to home prices surging 54.5% (all since 2019), consumers have been hit with dramatically increasing prices. This has led to not just an increase in household-debt levels across the country, but a higher frequency of credit card and debt delinquency as well. As consumers attempt to navigate the current economic environment, while also struggling with historically high interest rates, many are left wondering when inflation will finally end. Enter the Survey of Consumer Expectations, or SCE, a national survey that follows 1,300 households over the course of an entire year.

The survey allows the Federal Reserve Bank of New York to observe U.S. consumer expectations surrounding economic factors like inflation, food prices, housing, and even education. It also offers insight into how Americans view labor-market topics, including job prospects and potential earnings growth, as well as consumer expectations about their future spending and even access to credit. By having a clearer picture of consumer expectations, the Fed can more accurately predict consumer uncertainty.

The New York Fed released the results of its July 2024 survey on August 12, and the results were mixed. While the Federal Open Market Committee has remained firm in maintaining high interest rates, the results of the Survey of Consumer Expectations could influence its decision to bring down rates (or not) depending on how consumer expectations might ultimately affect spending habits.

The three-year-ahead consumer expectation for inflation fell to 2.3% in the New York Fed's recent survey results, the lowest ever measured since the survey was first created in 2013. With that said, the one-year (3%) and five-year (2.8%) expectations remained the same. Now, the reason this low expectation is significant is that if consumer expectations begin to rise upward, it's much more likely that consumers and businesses will adjust their spending habits in a way that could directly impact inflation and even make it worse. Plus, this drop in inflation expectations also indicates that inflation itself is shifting out of the average consumer's top concerns. In fact, a recent Gallup poll found that consumers were less likely to mention inflation as one of the primary concerns affecting the nation compared to 2022 and early 2023.

Perhaps one of the most concerning elements of the Survey of Consumer Expectations — and the point most likely to influence the Fed's interest-rate decision — is that the survey showed a 13.3% average probability of consumers missing a minimum debt payment in the next three months. Not only was this number up 1% compared to June results, but it was also the highest this factor has been since the COVID-fueled mass unemployment of April 2020. Remember that making a minimum payment on your debts is still significantly better than missing a payment. The survey found that the increase in this probability was highest for consumers with an annual income below $50,000 and those without a high school degree.

Another key element of the SCE survey concerns U.S. consumer expectations for the labor market. The July 2024 survey results showed mixed consumer feelings. For starters, the survey found that the one-year-ahead expected earnings growth actually declined, to 2.7%. At the same time, the expected growth in household income has remained largely unchanged since January 2023, highlighting the significant impact that strain factors like inflation and increased prices can have on households. The SCE also found that the share of households expecting a worse financial situation one year from now rose. (On that note, remember there are smart savings decisions you can make to help you combat inflation.)

Interestingly, the expected likelihood the U.S. unemployment rate will be higher one year from now actually decreased by an entire percentage point, to 36.6%. This sits below the 12-month average of 37.7% for this particular factor. Similarly, the perceived probability of a consumer losing their job in the next 12 months decreased by 0.5%, to 14.3%. However, the perceived probability of finding a job in the event of job loss dropped by almost a full percentage point, to 52.5%. This number highlights consumer unease about the job market, especially in light of mass layoffs and rising unemployment levels. To add more confusion to consumer expectations, the probability of a consumer voluntarily leaving their job hit its highest level, 20.7%, since early 2023, which is in keeping with rising levels of job unhappiness across the country. (By the way, the new year is considered the best time of year to look for a new job.)