Press Release

Consumers’ Inflation Expectations Dip, While Labor Market Expectations Strengthen

April 10, 2017

NEW YORK—The March 2017 Survey of Consumer Expectations shows a decline in both short-term and medium-term inflation expectations. Labor market expectations generally improved, with a rise in earnings growth expectations and a decline in the mean expected probability of losing one's job. Notably, the mean perceived probability of finding a job increased to its highest level since the series' start in June 2013. Expectations about increases in interest rates on savings accounts and in U.S. stock prices rose sharply, reaching new series' highs.

The main findings from the March 2017 Survey are:

Inflation

  • Median inflation expectations declined at both the one-year and the three-year ahead horizons from 3.0% in February to 2.7%. Both declines were fairly broad-based, but largest among middle-aged (between ages 40 and 60) and lower-educated (high school or less) household heads.
  • Median inflation uncertainty (the uncertainty expressed by respondents regarding future inflation outcomes) declined at the one-year but increased at the three-year ahead horizon.
  • Median home price expectations rebounded from 3.1% in February to 3.3%, remaining within the narrow 3.0-3.3% band observed since mid-2015. The increase was most pronounced for respondents with lower education (high school or less), and lower income (annual incomes of less than $50,000).
  • There was little change in median food, gas, rent and medical care price change expectations, with the exception of a modest decline in the median expected change in the cost of a college education from 7.4% in February to 7.1%.
  • The median expectation of the year-ahead gold price change increased sharply to 3.7%, a level not seen since June 2013.


Labor Market

  • Median one-year ahead expected earnings growth rebounded from 2.0% in February to 2.4%, matching its December and January levels. While somewhat volatile, this measure has remained within the 2.0%-2.5% range during the past two years. The rise was primarily driven by respondents with a high school degree or less, and with annual incomes less than $50,000.
  • The mean perceived probability of losing one's job in the next 12 months dropped from 15.0% in February to 14.5%, its lowest reading in five months. The mean probability of leaving one's job voluntarily in the next 12 months decreased slightly from 21.5% in February to 21.3%.
  • The mean perceived probability of finding a job (if one's current job were lost) increased substantially from 56.0% in February to 59.3%, its highest level since the series' start in June 2013. The increase was fairly broad-based.
  • Mean unemployment expectations (the mean probability that the U.S. unemployment rate will be higher one year from now), declined slightly from 35.8% in February to 35.5%, its lowest level in 19 months.

Household Finance

  • Median expected household income growth declined from 2.8% in February to 2.5%. The decline was driven by younger (under 40) and middle-income (between $50,000 and $100,000) respondents. Median household spending growth expectations, on the other hand, increased slightly from 3.2% in February to 3.3%.
  • The median expectation regarding year-ahead change in taxes (at current income level) retreated slightly from its series low of 2.1% in February to 2.2% in March.
  • The perceived change in credit availability compared to a year ago improved slightly, while the year-ahead expected credit availability was little changed.
  • The average perceived probability of missing a minimum debt payment over the next three months declined from 12.1% in February to 11.2%, its lowest reading since September 2015. The decline was broad-based 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 rose sharply from 38.1% in February to 41.8%, its highest level since the series' start in June 2013.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased from 43.9% in February to 45.4%. This is the highest reading in the 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