Some Improvements Registering In Survey Of Consumers’ Financial Expectations

Consumers’ expectations remain weak but their overall level of pessimism about their households’ financial situation continues to decline. The Federal Reserve Bank of New York's Center for Microeconomic Data has released its August 2020 Survey of Consumer Expectations. It shows home price growth expectations returned to levels close to a year ago, while delinquency expectations remain low. However, year-ahead spending, household income and labor market expectations all remain weak compared to the pre-COVID-19 period.

Perceptions about households' current financial situations compared to a year ago improved slightly, with more respondents reporting being better off. Similarly, one-year ahead expectations about households' financial situations also improved with more respondents expecting their financial situation to improve. On household finances, the survey revealed that expected household income growth increased by 0.1 percentage point to 2.2 percent in August, remaining well below its 2019 average of 2.8 percent. The increase was driven mostly by respondents below the age of 40. Household spending growth expectations remained steady at three percent in August, below its 2019 average of 3.2 percent.

However, the bank’s survey also showed that perceptions of credit access compared to a year ago and expectations for year-ahead credit availability both deteriorated in August, with more respondents reporting or expecting difficulties in obtaining credit. The average perceived probability of missing a minimum debt payment over the next three months increased slightly from last month series' low of 9.5 percent to 9.7 percent in August. This new reading remains well below its 2019 average of 11.5 percent. The median expectation regarding a year-ahead change in taxes—at current income level—decreased from three percent in July to 2.7 percent in August, thereby returning to its 2019 average. The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased to 28 percent in August, from 27.4 percent in July; and the mean perceived probability that U.S. stock prices will be higher 12 months from now increased 0.6 percentage points to 44.9 percent in August.

Inflation expectations increased 0.1 percentage point in August to three percent at the one-year horizon and increased 0.3 percentage point to three percent at the three-year horizon. The increase was driven mostly by respondents above the age of 40. Inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased for the second consecutive month at both horizons and remains elevated relative to pre-COVID-19 readings.

The survey reports that home price change expectations continued its rebound from a low of zero percent reached in April 2020, increasing from two percent in July to 2.8 percent in August, and inching closer to its 2019 average of three percent. The bank notes that this increase was broad-based across demographic groups and Census regions. The median one-year ahead expected change in the price of gasoline increased from 5.4 percent to 5.6 percent in August, while expectations for the cost of a college education and rent both increased by 0.3 and 0.1 percentage points to 5.1 percent and 5.5 percent, respectively. In contrast, the expected change in the cost of medical care declined from 9.1 percent to 8.3 percent, but remained elevated, compared to its 2019 average of 7.2 percent. Expected changes in food prices remain unchanged at 5.4 percent.

Regarding the labor market, the survey found that one-year ahead expected earnings growth remained flat at two percent in August, below its 2019 average level of 2.3 percent. Unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased slightly from 39.3 percent in July to 39.1 percent in August. The mean perceived probability of losing one's job in the next 12 months increased for the second consecutive month from 16 percent in July to 18 percent in August, well above its February reading of 13.8 percent. The increase was more pronounced among respondents without a college education and those with a household income below $50,000. The probability of leaving one's job voluntarily in the next 12 months increased 0.8 percentage point to 19.7 percent in August. The perceived probability of finding a job—if one's current job was lost—increased for the second consecutive month from 48.9 percent in July to 50.7 percent in August, but remained well below its 2019 average of 59.9 percent.

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