Labor Market Expectations Improving. Median Consumer Inflation Expectations Remain Stable.

from the New York Fed

The Federal Reserve Bank of New York today released results from its December 2014 Survey of Consumer Expectations (SCE), which provides insight into Americans’ views on inflation, prices, the labor market and household finance. While median consumer inflation expectations at both short and long term horizons remained unchanged from the previous month, the cross-sectional distribution of consumer inflation shifted considerably downwards. Median earnings growth expectations, while lower than in the previous month, remain above the average in the first eleven months of 2014. Expected job loss is at its lowest level since the inception of the survey in June 2013.

Additional results from December 2014 include:

Inflation

• Median inflation expectations at both the one-year and three-year ahead horizons were largely unchanged from November, at about 3 percent. However, the 25th and 75th percentiles at both horizons shifted down. At the 1-year horizon, the 25th percentile of median inflation expectations declined from 1.5 percent in November to 1 percent, and the 75th percentile decline from 6 percent to 5.7 percent.

• Median home price change expectations decreased slightly to 3.6 percent, and remain below the average of 3.85 percent in the first 11 months of 2014.

• Median one-year ahead gasoline price change expectations declined by 1.6 percentage points from November to 2.2 percent, their lowest level since the start of the series in June 2013. Gasoline price expectations at the same point last year were 4.8 percent.

Labor Market

• Median earnings growth expectations were 2.5 percent in December. While this is lower than the November reading of 2.7 percent, it is the second-highest reading of the variable since the start of the series in July 2013 (and above the 2014 average of 2.3 percent).

• The mean perceived probability of losing one’s job fell by nearly a percentage point from November to 14.5 percent, its lowest level since July 2013. The mean likelihood decreased for all education groups.

• The mean perceived probability of finding a job in the next three months (conditional on losing one’s job today) jumped to 51 percent, from 50.1 percent in November, halting the decline in the series since August 2014.

Household Finance

• Median household income growth expectations continued to remain at their high level of 2.9 percent. The 25th percentile increased to over 1 percent for the first time since the beginning of the series in June 2013. The increase in median expectations was particularly pronounced for those with a high school degree or less.

• Median household spending expectations increased from 4.5 percent in November to 4.8 percent, back to their level in early 2014.

• Expected change in credit availability a year from now or compared to a year ago improved from the previous month. The proportion of respondents expecting credit availability much or somewhat harder a year from now has fallen to 31 percent from a peak of 47 percent in October 2013.

About the Survey of Consumer Expectations

The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty in expectations for the main outcomes of interest. Expectations are also available by age, geography, income, education and numeracy.

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,200 household heads. Respondents participate in the panel for up to twelve months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, our panel allows us to observe the changes in expectations and behavior of the same individuals over time.

The survey is conducted on our behalf by The Demand Institute, a non-profit organization jointly operated by The Conference Board and Nielsen. The sampling frame for the SCE is based on that used for The Conference Board’s Consumer Confidence Survey (CCS). Respondents to the CCS, itself based on a representative national sample drawn from mailing addresses, are invited to join the SCE internet panel.