Press Release

Inflation Expectations Rise in January

February 13, 2017

NEW YORK—Results from the January 2017 Survey of Consumer Expectations show an increase in one-year and three-year ahead inflation expectations, with both returning to levels last seen in the summer of 2015. Earnings growth expectations were stable in January, but expectations about finding and losing a job and about the future unemployment rate all improved. Household financial expectations deteriorated somewhat, showing decreases in expected household income and spending growth, and increases in the likelihood of missing a debt payment. Expectations about increases in interest rates on savings accounts and in U.S. stock prices maintained their relatively high levels seen since December.

The main findings from the January 2017 Survey are:

Inflation

  • Median inflation expectations increased at the one-year horizon from 2.8% in December to 3.0% in January and increased from 2.8% to 2.9% at the three-year ahead horizon. Both increases were fairly broad-based, but largest among younger (under age 40) and higher-income (above $100,000) respondents.
  • Median inflation uncertainty (that is, the uncertainty expressed by respondents regarding future inflation outcomes) declined at the one-year but increased slightly at the three-year ahead horizon.
  • Median home price change expectations were essentially flat at 3.3%, remaining within the narrow 3.0 to 3.3% band observed over the past 18 months. While stable on aggregate, home price change expectations increased sharply among respondents residing in the West (from 3.3% to 4.1%), while falling for respondents residing in the Northeast (from 3.3% to 2.7%).
  • The median one-year ahead expected gasoline price change increased slightly, from 4.8% in December to 5.1% in January, while expectations for the change in the cost of a college education increased from 5.9% to 6.7%.

                     
Labor Market

  • Median one-year ahead earnings growth expectations were stable at 2.4%, remaining slightly above the series average of 2.3%.
  • Mean unemployment expectations (that is, the mean probability that the U.S. unemployment rate will be higher one year from now), decreased slightly from 38.7% in December to 37.3% in January, remaining within its narrow range of 37.1% to 39.5% observed since October 2015.
  • The mean perceived probability of losing one’s job in the next 12 months declined slightly in January (falling from 15.8% in December to 15.3%), remaining close to its 2016 average (of 14.9%). The decrease was driven by respondents with higher education and income levels. The mean probability of leaving one’s job voluntarily in the next 12 months decreased slightly from 22.0% to 21.7%.
  • The mean perceived probability of finding a job (if one’s current job were lost) increased from 55.6% in December to 56.4% in January, returning to a level last seen in November 2015.

Household Finance

  • Median expected household income growth declined from 2.8% in December to 2.6% in January. The decrease, while widespread across all education groups, was driven primarily by 40 to 60 years old and higher income (above $100,000) respondents.
  • Median household spending growth expectations dropped sharply from 3.7% in December to 3.1% in January, back to its level in October 2016. This series has been volatile, but the current reading is below its 2016 average of 3.5%. The decrease was broad-based across education and income groups.
  • The perceived change in credit availability compared to a year ago and the year-ahead expected credit availability both deteriorated somewhat in January.
  • The average perceived probability of missing a minimum debt payment over the next three months increased from 14.3% in December to 14.9% in January, matching its 3-year high reached in November 2016. The increase was driven by lower education (those with a high school degree or less) and lower income (annual incomes of less than $50,000) respondents.
  • The median expectation regarding year-ahead change in taxes (at current income level) rose slightly from its series low of 2.4% in December to 2.5% in January.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now (than it is today) fell slightly from its series high of 39.4% in December to 38.4% in January.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now (than they are today) declined slightly to 44.4%, remaining close to the series’ high reached in December. 
  • Median year-ahead expected growth in government debt retreated somewhat from a new series low of 4.8% reached in December to 5.0% in January, but remains well below the series average of 7.4%.  

 
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