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Inflation Expectations Hold Steady

July 9 — The Federal Reserve Bank of New York’s Center for Microeconomic Data has released its June 2018 “Survey of Consumer Expectations.” The survey shows there has been no change in short- and medium-term inflation expectations from May. However, households’ expectations about income, earnings and spending growth have recovered from a slight dip in May, as have year-ahead expectations about household financial situations.

Inflation

Median inflation expectations at both the one-year and three-year horizons were unchanged for the third straight month at 3 percent. Inflation uncertainty declined at the one-year horizon (returning to its April level) but increased slightly at the three-year horizon. Median home price change expectations increased 0.2 percentage points last month, to 3.9 percent, well above the 12-month trailing average of 3.3 percent, but home price growth uncertainty dipped slightly after reaching a 12-month high in May.

Expectations regarding gas prices also fell, with median one-year ahead expected price changes returning to the April level of 4.8 percent, after having reached 5.2 percent in May. Expectations for changes in the cost of medical care and college education each increased 0.3 percentage points, to 9.6 percent and 7 percent, respectively, while expectations surrounding food prices fell 0.1 percentage point to 4.4 percent. Rental prices are expected to stay the same, maintaining May’s 5.7 percent.

Labor Market

Earnings growth expectations returned to April’s level, up to 2.7 percent from May’s 2.5 percent. The increase was most pronounced among respondents with a high school degree or less. The increase was accompanied by a noticeable rise in earnings growth uncertainty. Unemployment expectations (the mean probability that the U.S. unemployment rate will be higher one year from now) increased to 34.3 percent, from 34.1 percent in the previous survey, but it still remains slightly below the 12-month trailing average of 34.5 percent.

Perceptions of the probability of losing one’s job in the next 12 months climbed 1.2 percentage points, reaching 15.2 percent, which is substantially above the 12-month trailing average of 13.9 percent. However, the mean probability of leaving one’s job voluntarily in the next year remained unchanged at 21.4 percent. The perceived probability of finding a job (if one’s current job was lost) fell slightly, decreasing to 58.6 percent, slightly below its 12-month trailing average of 58.8 percent.

Household Finance

Median expected household income growth has rebounded just slightly after three consecutive months of decreases, rising 0.1 percentage points to 2.7 percent. The increase was most pronounced among respondents with lower levels of education (high school degree or less) and lower income (annual income below $50,000). Household spending expectations also increased by 0.4 percentage points, hitting 3.4 percent — this reading had increased for three straight months at the beginning of 2018 before dipping in May.

Changes in taxes, at current income level, held steady in June at 2.2 percent, just above the trailing 12-month average of 2.1 percent.

Perceptions regarding credit availability compared to a year ago decreased slightly in June. The proportion of respondents reporting easier credit access declined to 23.6 percent, from May’s 23.9 percent, but expectations for year-ahead credit availability improved slightly, with the proportion expecting easier credit access edging up to 21.7 percent from 20.7 percent in the last survey.

Average perceived probability of missing a minimum debt payment over the next three months increased for the third month in a row, rising to 12.4 percent from 11.7 percent previously.

The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now than it is today increased to 37.1 percent, from 36.4 percent in May, matching March’s recent high. Fewer respondents expect U.S. stock prices to be higher 12 months from now, with 40.4 percent indicating they believe prices will be higher, compared to 42.8 percent in May.

Overall, one-year ahead expectations of households’ financial situations improved in June, with 11.8 percent of respondents expecting to be worse off financially, compared to 13.7 percent in May.

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 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, this panel allows observation of changes in expectations and behavior of the same individuals over time.

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