NY Fed Reports Sharp Decline in Consumer Expectations

The Federal Reserve Bank of New York’s Centre for Microeconomic Data released the March 2020 Survey of Consumer Expectations, which shows a considerable deterioration in households’ expectations regarding their labour market and financial situation across all age, education, and income groups.

The Fed reports the perceived probability of losing one’s job reached 18.5%, its highest level since the inception of the survey in June 2013. The expected growth in households’ income and spending fell sharply and the perceived availability of credit worsened. Additionally, the perceived risk of missing future debt payments increased substantially. Median inflation expectations remained stable at the one-year horizon at 2.5% and decreased at the three-year horizon from 2.6% to 2.4%. The dispersion in inflation expectations across respondents and the reported inflation uncertainty increased at both horizons, the Fed reports, with median one-year ahead expected change in home prices reached a new series’ low at 1.3%.

Inflation

Median inflation expectations at the one-year horizon were unchanged at 2.5%, but decreased at the three-year horizon to 2.4% in March from 2.6% in February. There was a notable increase in the dispersion of inflation expectations across respondents at both time horizons: the 25th percentile of inflation expectations reached new series’ lows at 0.2% for the one-year horizon and at 0.6% for the three-year horizon; while the 75th percentile increased to 5.3% and 5.0% at the one and three-year horizons, respectively.

There was a large increase in median inflation uncertainty – or the uncertainty expressed by each respondent regarding future inflation outcomes – at the one-year horizon, and a moderate increase at the three-year horizon.

The median one-year ahead expected change in home prices plunged to a new series’ low of 1.3%, considerably below the previous series’ low of 2.8%. The decline was broad-based across demographic groups and regions.

The median one-year ahead expected change in the price of gas declined again from 3.1% in February to 2.5% in March. The median one-year ahead expected change in rent and in the cost of college education both dropped 0.4 percentage points to new series’ low at 4.8% and 5%, respectively. In contrast, there were notable increases in one-year ahead expected change in food prices (from 4.0% in February to 4.6% in March) and in the cost of medical care (from 5.8% in February to 7.5% in March).

Labour Market

Median one-year ahead expected earnings growth decreased from 2.6% in February to 2.0% in March, reaching its lowest level since February 2017. The drop was broad-based across all age, education and income groups.

Mean unemployment expectations – or the mean probability that the US unemployment rate will be higher one year from now – increased dramatically from 34.2% in February to a new series’ high of 50.9%. This reading is 14.8 percentage points above the 12-month trailing average of 36.1%, the Fed notes.

The mean perceived probability of losing one’s job in the next 12 months increased 4.7% to 18.5% in March. The reading is a new series’ high and 4.3 percentage points above the 12-month trailing average. The increase was broad-based but particularly pronounced for respondents with a college degree. The mean probability of leaving one’s job voluntarily in the next 12 months decreased from 22.2% in February to 20.0% in March.

The mean perceived probability of finding a job (if one’s current job was lost) decreased from 58.7% in February to 53.0% in March, 6.5% below its 12-month trailing average of 59.9%.

Household Finance

Median household income growth expectations dropped sharply to 2.1% in March, 0.9% below its 12-month trailing average. Median household spending growth expectations declined to 2.3% in March, 0.9% below its 12-month trailing average. For both income and spending growth expectations, the drop was broad-based across age, education and income groups.

Perceptions of credit access compared to a year ago deteriorated in March, with 32.1% of respondents reporting access to credit being harder, as compared to 23.6% in February. Expectations for year-ahead credit availability also deteriorated in March, with 38.8% of respondents expecting that credit access will become harder, as compared to 28.3% in February.

The average perceived probability of missing a minimum debt payment over the next three months jumped to 15.1% in March, well above its 12-month trailing average of 11.6%.

Perceptions about households’ current financial situations compared to a year ago worsened considerably in March, with 6.7% of respondents reporting to be much worse off today than a year ago (versus 2.0% in February) and 23.5% reporting to be somewhat worse off (versus 13.7% in February). Respondents also became much more pessimistic in March about their year-ahead financial situations: 4.1% of respondents expect their households to be much worse financially a year from now (versus 1.1% in February) and 23.7% somewhat worse off (versus 9.5% in February).

The mean perceived probability that U.S. stock prices will be higher 12 months from now saw a large increase from 42.5% in February to 47.7% in March, which represents a new series’ high.

Julie Ros

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