On November 18, 2016, the New York Fed held an on-the-record economic press briefing about its Survey of Consumer Expectations (SCE), a monthly survey that focuses on Americans’ economic expectations and experiences. This survey covers American consumers’ views of how they think inflation, spending, credit access, and the housing and labor markets will evolve over time – insight that plays an important role in informing monetary policy decisions.
New York Fed President William C. Dudley opened the briefing with remarks, which were then followed by a presentation delivered by New York Fed economists Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar.
- The survey collects subjective expectations and intentions on a wide range of economic issues.
Unlike most data sources that inform monetary policy decisions, which are backward-looking, the SCE provides "reliable data on the beliefs and intentions held by economic agents and how they evolve over time."
- It assesses households' uncertainty about future events.
Survey respondents assign probabilities to ranges of future outcomes for issues like inflation and home price changes. These "density forecasts" allow economists to understand respondents’ perceived uncertainty in the likelihood of specific events occurring.
- The survey follows the same respondents throughout the year.
The SCE is structured as a "rotating panel," meaning that respondents remain on the panel for up to 12 months, with a constant fraction entering and rotating out each month. Among other benefits, this consistency across the monthly survey allows economists and researchers to more effectively examine how expectations are formed and revised over time.
As President Dudley said in his remarks, medium-term inflation expectations are of "particular importance" because "having reliable measures of inflation expectations is crucial to assess the effectiveness of monetary policy and central bank communications. Such an assessment focuses on analyzing the extent to which longer-run inflation expectations remain well-anchored, and on learning more about how agents update and revise their expectations in response to new information."
In our presentation, we note that there have been shifting trends in inflation expectations in the past year alone. For example, from September 2015 to January 2016 we saw a decline in inflation expectations of -0.46 percentage points; from January 2016 to June 2016, we saw an increase in inflation expectations of 0.24 percentage points; and then from June 2016 through October 2016 inflation expectations were relatively flat.
- On average, respondents assign a probability of 66% of being able to come up with $2,000 in the next month.
- On average, 65.3% of respondents who assigned a non-zero probability of coming up with $2,000 said that they would likely get that money from their own savings. Meanwhile, 13.9% said they’d borrow from friends and family.
- As the unemployment rate falls, consumers expected and demanded higher paying job offers. For example, as unemployment fell from late-2014 through mid-2016, expectations about average offers and the average reservation wages increased by 3.2% and 5.8% respectively.