Press Release

Consumers’ Inflation Expectations Remain Well-Anchored, but Labor Market Expectations Weaken

December 12, 2016

NEW YORK— Results from the November 2016 Survey of Consumer Expectations show that consumer inflation expectations only shifted minimally since October, while expectations about the labor market became more negative. In particular, short-term inflation expectations remained steady, while medium-term inflation expectations increased slightly. Labor market expectations generally deteriorated, with a decline in earnings growth and job finding expectations, and a small increase in the expected probability of losing one's job. While there was a notable improvement in future perceived credit access, debt delinquency expectations rose. Notably, for expectations regarding the change in year-ahead taxes (at current income levels), November saw the lowest expected increase since the series' advent in June 2013.

The main findings from the November 2016 Survey are:

Inflation
  • Median three-year ahead inflation expectations rose from 2.6% in October to 2.7%. The increase was driven, primarily, by younger (those under 40 years) and college-educated respondents. Median year-ahead inflation expectations declined slightly (by 0.05%) from 2.6% in October to 2.5%. There was an increase in inflation uncertainty at both horizons.
  • Median home price expectations decreased from 3.2% in October to 3.1%. Lower-educated respondents (those with a high school degree or less) exhibited a notable decline in their expectations—the median expectations for this group declined from 3.5% in October to 3.0%.
  • Median year-ahead expectations for all commodity price changes declined from October, except for a college education and gold. The median expectation for the change in gold prices rose from 2.3% in October to 2.6%, its highest level since April 2016.

Labor Market

  • Median year-ahead expected earnings growth declined slightly from 2.1% in October to 2.0%, similar to the level seen in September. The decrease was driven by individuals who are between 40 and 60 years old, those with an intermediate level of education (some college) and income ($50,000 to $100,000). Meanwhile expectations for the other age, education and income groups rose. Average median year-ahead earnings growth expectations are well below the 2015 average of 2.4%.
  • The mean perceived probability of losing one's job in the next 12 months increased from 14.0% in October to 16.4%. The increase was widespread across all age, education and income groups. In contrast, the mean probability of leaving one's job voluntarily in the next 12 months declined from 22.3% in October to 22.0%.
  • The mean perceived probability of finding a job (if one's current job were lost) declined from 54.9% in October to 53.0%, its lowest level since April this year. The decline was widespread across all age, education and income groups. The mean probability of finding a job declined in all the regions across the United States except for the Northeast.

Household Finance

  • Median expected household income growth continued to decline, dropping from 2.5% in October to 2.4%, continuing the declining trend seen since August. The decrease was driven by younger household heads and those with less than a bachelor's degree.
  • Median household spending growth expectations rose from 3.2% in October to 3.6%, reversing the decline observed in the prior month. The increase was driven, primarily, by younger (under 40) and lower-income respondents (annual incomes of less than $50,000).
  • The median expectation regarding year-ahead change in taxes (at current income level) declined from an expected increase in taxes of 2.9% in October to 2.5%. This is the lowest expected increase in taxes for this series since its start in June 2013. The median expectation declined for all income groups except the lowest (households with annual income of less than $50,000).
  • Perceptions of credit access relative to a year ago and expectations regarding year-ahead credit availability both improved from the previous month. For example, the proportion of households expecting it to be easier to obtain credit a year from now rose from 16% in October to 22%.
  • The average perceived probability of missing a minimum debt payment over the next three months rose from 14.4% in October to 14.9%, its highest level since January 2014. The uptick was most pronounced for household heads with a high school degree or less.
  • The average perceived probability that the average interest rate on savings account will be higher 12 months from now (than it is today) increased from 29.6% in October to 35.2%. This is the highest reading in this series since its start in June 2013.

About the Survey of Consumer Expectations

The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing and education to behave. It also provides insight into Americans' views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty in expectations for the main outcomes of interest. Expectations are also available by age, geography, income, education and numeracy.

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,200 household heads. Respondents participate in the panel for up to twelve months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, our panel allows us to observe the changes in expectations and behavior of the same individuals over time.

The survey is conducted on our behalf by The Demand Institute, a non-profit organization jointly operated by The Conference Board and Nielsen. The sampling frame for the SCE is based on that used for The Conference Board's Consumer Confidence Survey (CCS). Respondents to the CCS, itself based on a representative national sample drawn from mailing addresses, are invited to join the SCE internet panel.

Contact
Betsy Bourassa
(212) 720-6885
betsy.bourassa@ny.frb.org