Fed Survey finds Consumers Expecting Low Inflation and Wages to Match

A recent survey conducted by the Federal Reserve Bank of New York indicated that the public expectations regarding household income growth and spending have declined, and consumers are conflicted about their expectations regarding job security. Respondents are surveyed over the course of 12 months so their opinions can be monitored over time.

When it came to inflation, respondents’ predictions generally remained steady, reflecting a median expectation of 2.5 percent inflation throughout the next year. The panel expected 2.8 percent inflation over the next three years, and insecurity about inflation decreased. Throughout 2015, respondents said they anticipated home prices to increase approximately 3 percent.

The panel had mixed expectations when it came to the job market. From November to December, median wage-growth predictions dropped from 2.5 percent to 2 percent, a number that hadn’t been seen for two years. However, respondents did feel as though their jobs were more stable, estimating the likelihood of losing a job at 13.5, which was the second-lowest estimation since the survey was implemented. Even though the panel was more confident when it came to job security, respondents were slightly less confident than they were in November about finding another job within 3 months.

In regards to household income growth, respondents’ anticipations went down between November and December. Even though the panel predicted 2.7 to 2.9 percent income growth over the next year in the first three quarters of 2015, expectations for income growth dropped to 2.3 percent in December. Consumers expect household spending to decline as well, predicting the lowest growth since the survey’s launch in the summer of 2013.

Younger respondents with higher education and income drove down the expectations for household income growth. While all age groups predicted a diminished labor market, people with a low education and medium-range income had the lowest expectations. It was typically the older demographic with lower education and income levels that projected diminished spending.

Sign up to get “My Two Cents.” It’s a blog where I share my thoughts on everything related to real estate finance.