Survey Shows Consumers’ Inflation Expectations Declined; Household Income Expectations Improved

Survey of Consumer ExpectationsAccording to the Federal Reserve Bank of New York’s Center for Microeconomic Data’s July 2022 Survey of Consumer Expectations, income growth expectations are improving.

08/16/2022 1:30 P.M.

3  minute read

The Federal Reserve Bank of New York’s Center for Microeconomic Data recently released the July 2022 Survey of Consumer Expectations, which shows substantial declines in short, medium, and longer-term inflation expectations. Among a number of inflation declines on gas, food, and year-ahead spending, the survey found that households’ income growth expectations are improving.

Main findings from the survey include:

  • The median expected growth in household income increased by 0.2 percentage points in July to 3.4%, a new series high. The increase was most pronounced for respondents without a college education and with lower (below $50,000) annual household incomes.
  • The average perceived probability of missing a minimum debt payment over the next three months decreased by 0.5 percentage point to 10.8%, remaining below its pre-pandemic level of 11.4% in February 2020.
  • The median expectation regarding a year-ahead change in taxes (at current income level) increased by 0.4 percentage points to 4.9%.
  • Median year-ahead expected growth in government debt decreased by 0.4 percentage points to 10.7%.
  • Perceptions about households’ current financial situations compared to a year ago improved slightly in July, with slightly fewer respondents reporting being financially worse off than they were a year ago. Respondents were also more optimistic about their household’s financial situation in the year ahead, with fewer respondents expecting their financial situation to deteriorate a year from now.
  • Perceptions of credit access compared to a year ago continued to deteriorate in July, with the share of respondents finding it harder to obtain credit now than a year ago reaching a series high. Expectations about future credit availability improved slightly.

Inflation Expectations on the Horizon

Additionally, the Fed’s report shows median one- and three-year-ahead inflation expectations both declined sharply in July, from 6.8% and 3.6% in June to 6.2% and 3.2%, respectively. Both decreases were broad-based across income groups, but largest among respondents with annual household incomes under $50,000 and respondents with no more than a high school education. Median five-year ahead inflation expectations also declined to 2.3% from 2.8% in June.

Expectations about year-ahead price increases for gas and food fell sharply. Home price growth expectations and year-ahead spending growth expectations continued to pull back from recent series highs.

The report is based on data from the New York Fed’s Survey of Consumer Expectations, a nationally representative online survey conducted by a rotating panel of over 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.

Read more findings from the report here.

Consumer Confidence Across the U.S.

According to a report from intelligence company Morning Consult’s Index of Consumer Sentiment (ICS), U.S. consumer confidence improved in July, halting a year-long decline. Additionally, confidence rose in 30 of 50 (60%) states in July, having declined in at least 45 states in both May and June.

Morning Consult’s ICS has closely tracked trends in consumer confidence, retail sales, interest rates and rising inflation since the inception of the COVID-19 pandemic.

“While it remains an open question whether this upswing in sentiment is just a momentary reprieve or the beginning of a trend, it does provide optimism the U.S. economy can avoid a sharp pullback in consumer demand that would increase the odds of a recession,” said John Leer, chief economist at Morning Consult, in the report.

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