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Consumers Expect Both Inflation & Home Prices To Fall

Katie Jensen
Dec 12, 2022
Optimism

Consumers also more optimistic that household income will grow.

KEY TAKEAWAYS
  • Consumers are becoming more confident that inflation will calm down within the next few years.
  • Median expected earnings growth for next year decreased by 0.2 percentage points to 2.8% in November.
  • The median expected growth in household income increased by 0.2 percentage points to 4.5% in November.
  • Perceptions of credit access compared to a year ago deteriorated in November.

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the November 2022 Survey of Consumer Expectations, showing that inflation expectations decreased in November at the short, medium, and longer terms. Additionally, home-price growth is expected to decline. Meanwhile, labor market expectations strengthened and household income growth expectations increased to a new series high.

Inflation

Median inflation is expected to decrease at both the one- and three-year-ahead horizons in November, by 0.7 percentage points to 5.2% and by 0.1 percentage point to 3%, respectively. Both decreases were broad-based across education and income groups. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at both horizons.

Median five-year-ahead inflation expectations also decreased by 0.1 percentage point to 2.3%. Disagreements across respondents in their five-year-ahead inflation expectations decreased in November.

Consumers are becoming more confident that inflation will calm down within the next few years. The survey shows the uncertainty expressed regarding future inflation outcomes has decreased at both the short-term and medium-term horizon.

Median home price growth expectations dropped by 1 percentage point to 1% — its lowest reading since May 2020. The decrease was broad-based across education and income groups, but most pronounced for respondents from the South. Since August 2022, home-price growth expectations have been well below their pre-pandemic levels.

Additionally, median year-ahead expected price changes declined by 0.1 percentage point for rent.

Labor Market 

Next year’s median expected earnings growth decreased by 0.2 percentage points to 2.8% in November. The decline was driven by respondents without a college degree and with annual household incomes below $100,000. The series has been moving between a narrow range of 2.8% to 3% since September 2021.

The mean probability that the U.S. unemployment rate will be higher one year from now has decreased by 0.7 percentage points to 42.2%. The decrease was driven by respondents with annual household incomes above $50,000.

The mean perceived probability of losing one’s job in the next 12 months decreased by 0.3 percentage points to 11.7%. Similarly, the mean probability of leaving one’s job voluntarily in the next 12 months decreased by 0.9 percentage points to 18.6%.

The mean perceived probability of finding a job (if one’s current job was lost) increased by 0.2 percentage points to 58.2%, its fourth consecutive monthly increase and the highest reading since February 2020.

Household Finance

The median expected growth in household income increased by 0.2 percentage points to 4.5% in November, a new series high. The increase was driven by respondents with no more than a high school education.

Median household spending growth expectations decreased slightly to 6.9% from 7% in October.

Perceptions of credit access compared to a year ago deteriorated in November, with the share of households reporting it is harder to obtain credit than one year ago increasing to a new series high. Expectations for future credit availability were unchanged, continuing to indicate that respondents expect credit access to tighten further.

The average perceived probability of missing a minimum debt payment over the next three months increased to 11.8% from 11.6% in October, remaining comparable to rates that prevailed leading up to the pandemic.

The median expectation regarding a year-ahead change in taxes (at current income level) increased by 0.3 percentage points to 4.6%.

Median year-ahead expected growth in government debt continued its declining trend and decreased by 0.1 percentage point to 10.1%, its lowest reading since March 2020.

The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 3.1 percentage points to 32.4%, its lowest reading since February 2022.

Perceptions about households’ current financial situations compared to a year ago improved slightly. Year-ahead expectations about households’ financial situations also improved in November.

The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.8 percentage points to 35.7%.

The release of consumer expectations comes one day before the Federal Reserve's Federal Open Market Committee (FOMC)  begins its two-day meeting on Tuesday to discuss another possible rate increase.

The FOMC has raised rates six times this year — including four consecutive 75-basis-point increases in June, July, September, and November (it did not meet in August). Most economists expect either a 50- or 75-basis-point increase following the conclusion of this month's meeting on Wednesday. That will also be based in part on what the latest Consumer Price Index report shows; the CPI for November will be released Tuesday.

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