Press Release

Slight Uptick in Consumers’ Medium-Term Inflation Expectations

March 13, 2017

NEW YORK— The February 2017 Survey of Consumer Expectations shows a slight uptick in median three-year ahead inflation expectations, which reached 3.0%, a level last obtained in July 2015. Revisions in the labor market outlook of consumers were mixed, with job loss and unemployment rate expectations improving, but job finding expectations weakening slightly. However, financial expectations (including expected household income and spending growth) generally improved. The median expectation regarding year-ahead change in taxes (at current income level) reached the lowest level since the series’ start in June 2013.

The main findings from the February 2017 Survey are:

Inflation

  • Median year-ahead inflation expectations were unchanged from January, at 3.0%. Median inflation expectations at the three-year ahead horizon, however, rose slightly from 2.9% to 3.0%, their highest level since mid-2015. The increase was primarily driven by household heads with at least a bachelor’s degree. Median inflation uncertainty (that is, the uncertainty expressed by respondents regarding future inflation outcomes) declined at both the one-year and three-year ahead horizons.
  • Median home price expectations declined from 3.3% in January to 3.1%, remaining within the narrow 3.0-3.3% band in which they have prevailed since mid-2015. The decline was most pronounced for respondents with lower education (high school or less) and lower income (annual incomes of less than $50,000), and for those residing in the West and South.
  • The median expectation of year-ahead gasoline price change dropped from 5.1% in January to 4.4%, its lowest level since January 2016. Likewise, the median expectation of the year-ahead food price change dropped to 4.4%, its lowest level since the series’ start in June 2013. On the other hand, the median expectation for the change in the cost of a college education increased to 7.4%, its highest level since late-2015.

Labor Market

  • Median one-year ahead expected earnings growth dropped from 2.4% in January to 2.0%, the same level as in November 2016. The series has been oscillating between 2.0% and 2.4% since August 2016. The drop was driven by respondents with less than a Bachelor’s degree, and with those ages 60 or less.  
  • Expectations regarding labor market transitions were mixed. The mean perceived probability of losing one’s job in the next 12 months dropped from 15.3% in January to 15.0%, its lowest reading in 4 months. The mean probability of leaving one’s job voluntarily in the next 12 months decreased slightly from 21.7% in January to 21.5%. The mean perceived probability of finding a job (if one’s current job were lost) decreased from 56.4% in January to 56.0%.
  • Mean unemployment expectations (that is, the mean probability that the U.S. unemployment rate will be higher one year from now), declined from 37.3% in January to 35.8%, its lowest level in 19 months. The decline was broad-based across age groups.

Household Finance

  • Median expected household income growth increased from 2.6% in January to 2.8%. The increase was most notable for higher-income (above $100,000) respondents, whose median expectation rose from 2.7% in January to 2.9%. Median household spending growth expectations also increased slightly from 3.1% in January to 3.2%.
  • The median expectation regarding year-ahead change in taxes (at current income level) declined sharply from 2.5% in January to 2.1%, the lowest level since the series’ start in June 2013. The drop was most notable for lower-income respondents—the median expectation for respondents with incomes of less than $50,000 dropped from 3.0% in January 2.2%.
  • The perceived change in credit availability compared to a year ago and the year-ahead expected credit availability became less dispersed in February, with the share of households reporting no change in availability rising.
  • The average perceived probability of missing a minimum debt payment over the next three months dropped from 14.9% in January to 12.1%, its lowest reading since March 2016. The drop was broadbased across age, income, and education groups.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now (than it is today) fell from 38.4% in January to 38.1%, still close to the series’ high of 39.4% (registered in December 2016).
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now than they are today dropped to 43.9% (from 44.4% in January and the series’ high of 44.6% in December).

 
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