The Federal Reserve Bank of New York’s Center for Microeconomic Data has recently released its August 2023 Survey of Consumer Expectations, providing insights into the current economic situation. The survey reveals concerning trends in income growth perceptions and job loss expectations, as well as deteriorating perceptions about credit conditions and future financial situations.
In August, households’ perceptions of income growth declined, reflecting a growing pessimism about future earnings. This is particularly worrisome as job loss expectations rose sharply, reaching their highest level since April 2021. It seems that individuals are increasingly concerned about the stability of their employment, indicating a lack of confidence in the job market.
Moreover, the survey highlights deteriorating expectations regarding credit conditions. Both current credit conditions and future credit availability were viewed more negatively by respondents. This indicates that households believe it will become harder to obtain credit in the coming year, which could have implications for their ability to make necessary purchases or investments.
Another concerning finding is the decline in perceptions of current financial situations and expectations for the future. Respondents reported a worsening of their current financial situations compared to a year ago, suggesting that many households are struggling to maintain or improve their financial well-being. Additionally, expectations for future financial situations also worsened, with more respondents expecting to be worse off financially in one year’s time. This indicates a lack of optimism about future economic prospects.
In terms of inflation expectations, the survey shows a slight increase in both one- and five-year-ahead inflation expectations. Median inflation expectations rose by 0.1 percentage point to 3.6% and 3.0%, respectively. Conversely, three-year-ahead inflation expectations declined by 0.1 percentage point to 2.8%. The survey also measures the disagreement across respondents, with the difference between the 75th and 25th percentile of inflation expectations. This measure increased at the one-year-ahead horizon but decreased at the three- and five-year-ahead horizons.
Furthermore, the survey reveals that median home price growth expectations increased to 3.1%, its highest reading since July 2022. This increase was most pronounced among respondents under the age of 60 and those with a high school education or less. Additionally, year-ahead commodity price expectations rose across the board, with gas, food, medical care, college education, and rent all experiencing increases.
On the employment front, median one-year-ahead expected earnings growth rose slightly to 2.9% in August. This series has been fluctuating within a narrow range since September 2021, suggesting stable but modest expected earnings growth. However, mean unemployment expectations, which reflect the probability of the U.S. unemployment rate being higher one year from now, increased by 1.8 percentage points to 38.5%. This remains below the 12-month trailing average of 40.2%. The mean perceived probability of losing one’s job in the next 12 months also increased to 13.8%, the highest reading since April 2021. The mean probability of leaving one’s job voluntarily in the next 12 months also saw an increase to 18.9%. These increases were most pronounced among respondents with a high school education or less and an annual household income below $50k. At the same time, the mean perceived probability of finding a job if one’s current job was lost decreased slightly to 55.7%.
In terms of household spending, median household spending growth expectations fell slightly to 5.3%. This indicates a somewhat decreased willingness to spend among consumers. Additionally, the survey shows that perceptions of credit access compared to a year ago deteriorated, with a growing share of households reporting difficulties in obtaining credit. Expectations for future credit availability also worsened, with more respondents expecting it to be harder to obtain credit in the year ahead.
The survey also touches on debt payment concerns. The average perceived probability of missing a minimum debt payment over the next three months fell slightly to 11.1%. This indicates some improvement in debt repayment abilities. However, median year-ahead expected growth in government debt declined to 8.9%, its lowest reading since February 2020.
As for savings and investments, the mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased to 30.1%. This suggests a decreased expectation of higher interest rates, which may influence individuals’ decisions on saving and investment strategies. Furthermore, the mean perceived probability that U.S. stock prices will be higher 12 months from now decreased to 35.2%, reflecting a more cautious outlook on the stock market.
Overall, the August 2023 Survey of Consumer Expectations highlights declining income growth perceptions, rising job loss expectations, deteriorating perceptions about credit conditions, and worsening expectations for current and future financial situations among households. It also reveals modest increases in inflation expectations and home price growth expectations, as well as concerns about commodity price increases. The survey underscores the challenges individuals and households are facing in navigating the current economic landscape, as well as their cautious outlook on the future.