Christopher Alarcon, Wealth of Geeks
In January 2024, the Federal Reserve Bank of New York’s Center for Microeconomics released its Survey of Consumer Expectations. It reports the average American believes that inflation will remain steady, at least for the next few years. However, they feel jobs may not have the same staying power.
The study gauges consumers’ perceptions of household financial health and credit availability. In other words, the study’s results reveal the “temperature in the room” at a given point in the macroeconomic cycle.
Consumers’ expectations for inflation in the next three years slightly declined, and labor market expectations were mixed.
Financial surveys often confirm current trends or predict future shifts in consumer confidence. These results indicate consumer confidence is generally up across the board.
John Dealbreuin, a personal finance expert who writes at Financial Freedom Countdown, is cautious about the economy, considering the persistent high inflation and the rise in the unemployment rate to the highest in the last two years.
“The jobless rate rose to 3.9%, up from 3.7% in January. Japan and the U.K. both slipped into recession at the end of last year, which is concerning for the U.S. economy,” Dealbreuin told us. “The Fed does have room to cut rates as long as inflation trends lower.”
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Consumer confidence levels at a glance
Producers of the survey polled approximately 1,300 heads of households to generate a representative sample of consumers. The questions generally focused on three economic factors indicative of an economy’s overall health: inflation rates, labor market growth, and household finances.
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Inflation expectations
The survey’s findings divided consumer expectations into three “horizons”: one-year, three-year, and five-year outlooks. Respondents were asked what they believed the average inflation rate would be at any given point in time. The one-year horizon expectation was an inflation rate of 3%. By the five-year horizon, the inflation rate would improve to 2.5%. However, the predicted inflation rate during the midrange three-year horizon would be closer to 2.4%, hoping for a slightly healthier economy.
Consumers expect prices for many goods and services to fall over the one-year horizon. Gas prices, for instance, would be expected to change by a modest 4.2%, not the 4.5% reported in earlier surveys. The price of food would increase by 4.9%. Rent prices would only grow by 6.4% as the housing market recovers. Medical costs would rise by 8.6%, and college tuition hikes would hold steady at 5.9%. Home prices would also rise a manageable 3%, a figure unchanged from previous surveys.
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Labor market realities
Respondents report a modest 2.8% growth in potential income, a 0.3% increase from the previous survey period. Participants over 40 and those without a college-level education actually drove a slight increase in income over previous results.
Predicting the United States unemployment rate will rise in the short term, the survey’s “mean unemployment expectations” increased slightly to 37.2%, which is still below the survey series’ 12-month average of 39.2%.
At a more personal level, the perceived probability of losing employment in the next 12 months dropped by 1.6% to 11.8%. A similar question about voluntarily quitting a job in the next year fell from 20.4% in December 2023 to 17.7% in the January 2024 survey. The perceived probability of finding new employment after a job loss fell almost two percentage points, with 54.2% of respondents feeling confident about finding work in the upcoming year.
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Household finances
Expected growth in household income remained at 3.1% in the January survey, which is notably higher than the 2.7% pre-pandemic expectations of February 2020. An increase in household spending power of 5% remains higher than average.
The perceived chances of missing a minimum debt payment in the next three months decreased to 12.1%, a strong indicator of growing consumer confidence.
More survey respondents report being better off than the previous year, and fewer reported being worse off. This increase in consumer optimism is expected to extend into the upcoming year, with 76.5% anticipating similar or improved household economics a year from now.
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Are consumer expectations surveys reliable measuring sticks?
This survey is only one of many studies and polls conducted regularly to gauge the perceived health of the U.S. economy. Factors such as inflation rates, labor markets, and household finances are not the only litmus tests required for an accurate macroeconomic evaluation.
“Economic data is tricky because the same set of numbers and trends can result in different conclusions,” according to Prakash Kolli of Dividend Power, a site about building wealth. “The end of 2022 is a perfect example. Many economists and politicians forecasted a recession in 2023, but it did not occur.”
“Areas of weakness do exist in housing and manufacturing. However, I am more optimistic than pessimistic because of the generally positive growth, employment, and inflation data,” he added.
The results of consumer expectation surveys and other subjective measuring sticks do provide helpful information for those looking for a quick “up-or-down” economic soundbite. However, they should still be compared and contrasted with other financial data sources.
The study gauges consumers’ perceptions of household financial health and credit availability. In other words, the study’s results reveal the “temperature in the room” at a given point in the macroeconomic cycle.
Consumers’ expectations for inflation in the next three years slightly declined, and labor market expectations were mixed.
Financial surveys often confirm current trends or predict future shifts in consumer confidence. These results indicate consumer confidence is generally up across the board.
John Dealbreuin, a personal finance expert who writes at Financial Freedom Countdown, is cautious about the economy, considering the persistent high inflation and the rise in the unemployment rate to the highest in the last two years.
“The jobless rate rose to 3.9%, up from 3.7% in January. Japan and the U.K. both slipped into recession at the end of last year, which is concerning for the U.S. economy,” Dealbreuin told us. “The Fed does have room to cut rates as long as inflation trends lower.”
—————
Consumer confidence levels at a glance
Producers of the survey polled approximately 1,300 heads of households to generate a representative sample of consumers. The questions generally focused on three economic factors indicative of an economy’s overall health: inflation rates, labor market growth, and household finances.
—————
Inflation expectations
The survey’s findings divided consumer expectations into three “horizons”: one-year, three-year, and five-year outlooks. Respondents were asked what they believed the average inflation rate would be at any given point in time. The one-year horizon expectation was an inflation rate of 3%. By the five-year horizon, the inflation rate would improve to 2.5%. However, the predicted inflation rate during the midrange three-year horizon would be closer to 2.4%, hoping for a slightly healthier economy.
Consumers expect prices for many goods and services to fall over the one-year horizon. Gas prices, for instance, would be expected to change by a modest 4.2%, not the 4.5% reported in earlier surveys. The price of food would increase by 4.9%. Rent prices would only grow by 6.4% as the housing market recovers. Medical costs would rise by 8.6%, and college tuition hikes would hold steady at 5.9%. Home prices would also rise a manageable 3%, a figure unchanged from previous surveys.
—————
Labor market realities
Respondents report a modest 2.8% growth in potential income, a 0.3% increase from the previous survey period. Participants over 40 and those without a college-level education actually drove a slight increase in income over previous results.
Predicting the United States unemployment rate will rise in the short term, the survey’s “mean unemployment expectations” increased slightly to 37.2%, which is still below the survey series’ 12-month average of 39.2%.
At a more personal level, the perceived probability of losing employment in the next 12 months dropped by 1.6% to 11.8%. A similar question about voluntarily quitting a job in the next year fell from 20.4% in December 2023 to 17.7% in the January 2024 survey. The perceived probability of finding new employment after a job loss fell almost two percentage points, with 54.2% of respondents feeling confident about finding work in the upcoming year.
—————
Household finances
Expected growth in household income remained at 3.1% in the January survey, which is notably higher than the 2.7% pre-pandemic expectations of February 2020. An increase in household spending power of 5% remains higher than average.
The perceived chances of missing a minimum debt payment in the next three months decreased to 12.1%, a strong indicator of growing consumer confidence.
More survey respondents report being better off than the previous year, and fewer reported being worse off. This increase in consumer optimism is expected to extend into the upcoming year, with 76.5% anticipating similar or improved household economics a year from now.
—————
Are consumer expectations surveys reliable measuring sticks?
This survey is only one of many studies and polls conducted regularly to gauge the perceived health of the U.S. economy. Factors such as inflation rates, labor markets, and household finances are not the only litmus tests required for an accurate macroeconomic evaluation.
“Economic data is tricky because the same set of numbers and trends can result in different conclusions,” according to Prakash Kolli of Dividend Power, a site about building wealth. “The end of 2022 is a perfect example. Many economists and politicians forecasted a recession in 2023, but it did not occur.”
“Areas of weakness do exist in housing and manufacturing. However, I am more optimistic than pessimistic because of the generally positive growth, employment, and inflation data,” he added.
The results of consumer expectation surveys and other subjective measuring sticks do provide helpful information for those looking for a quick “up-or-down” economic soundbite. However, they should still be compared and contrasted with other financial data sources.
