The New York Federal Reserve Bank's December 2023 Economic Survey of 1,300 consumers paints a mixed picture of economic expectations, with declining inflation and earnings growth expectations while expectations about credit access and households’ financial situation turn less pessimistic.
The survey found a decline in inflation expectations at short-, medium-, and longer-term horizons. Median inflation expectations dropped to 3% from 3.4% for the one-year ahead horizon, to 2.6% from 3% for the three-year ahead horizon, and to 2.5% from 2.7% for the five-year ahead horizon. Inflation expectations at the one-year horizon reached the lowest level recorded since January 2021.
The survey also assessed the disagreement across respondents, which measures the difference between the 75th and 25th percentile of inflation expectations. This disagreement increased for the one-year ahead horizon but decreased for the three-year and five-year ahead horizons.
Earnings growth expectations have also experienced a dip, with median one-year-ahead expected earnings growth decreasing by 0.2 percentage points to 2.5%. This marks the lowest level since April 2021 and is attributed to respondents with at most a high school diploma.
Median household spending growth expectations have followed a similar trend, declining by 0.2 percentage points to 5%. This figure is the lowest recorded since September 2021 but remains significantly above the February 2020 pre-pandemic level of 3.1%.
While many expectations have seen declines, there are some positive signs in the survey data. Credit access perceptions compared to a year ago remained largely unchanged. However, expectations about credit access a year from now have improved, with more respondents expecting looser credit conditions and fewer anticipating tighter credit conditions.
Households' financial situations have also shown improvement, with fewer respondents reporting being worse off than a year ago. Year-ahead expectations have similarly improved, with a smaller share of respondents expecting to be worse off and a larger share expecting to be better off a year from now.
However, median expected growth in household income decreased slightly by 0.1 percentage points to 3%, but it remains above the pre-pandemic level of 2.7%.
Mean unemployment expectations decreased by 1.4 percentage points to 37%, remaining below the 12-month trailing average of 39.5%.
Perceptions of job security saw a slight improvement, with a lower mean probability of losing one's job but a higher mean probability of voluntarily leaving one's job in the next 12 months.
The survey indicated that the average perceived probability of missing a minimum debt payment over the next three months increased slightly to 12.4%, but it remains comparable to levels before the pandemic.
