Medium-Term Inflation Expectations Decline; Short And Longer-Term Inflation Expectations Unchanged
FED
2024-08-13The July 2024 Survey of Consumer Expectations shows that inflation expectations were stable at the short- and longer-term horizons, but fell sharply at the medium-term horizon to a new series low. Labor market expectations were mixed, with respondents expecting lower earnings growth and a lower likelihood of finding a new job within three months if they were laid off.
The main findings from the July 2024 Survey are:
Inflation
Median one- and five-year-ahead inflation expectations were unchanged in July at 3.0% and 2.8%, respectively. Conversely, median three-year-ahead inflation expectations declined sharply by 0.6 percentage point to 2.3%, hitting a series low since the survey’s inception in June 2013. This decline was most pronounced for respondents with a high-school education or less and those with annual household income under $50,000. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at the one- and five-year-ahead horizons and was unchanged at the three-year-ahead horizon.
Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—was unchanged at all three horizons.
Median home price growth expectations was unchanged at 3.0% in July.
Year-ahead commodity price expectations declined by 0.8 percentage point for gas to 3.5% and 0.1 percentage point for food to 4.7%, but rose by 0.2 percentage point for the cost of medical care to 7.6%, 1.9 percentage points for the cost of college education to 7.2%, and 0.6 percentage point for rent to 7.1%.
Labor Market
Median one-year-ahead expected earnings growth declined by 0.3 percentage point to 2.7% in July. The series has been moving within a narrow range of 2.7-3.0% since January 2024.
Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.0 percentage point to 36.6%, remaining below its 12-month trailing average of 37.7%.
The mean perceived probability of losing one’s job in the next 12 months decreased by 0.5 percentage point to 14.3%. The mean probability of leaving one’s job voluntarily in the next 12 months increased by 0.2 percentage point to 20.7%, the measure’s highest reading since February 2023.
The mean perceived probability of finding a job (if one’s current job was lost) decreased by 0.9 percentage point to 52.5%.
Household Finance
The median expected growth in household income was unchanged at 3.0% in Jul. This series has been moving in a narrow band between 2.9% and 3.3% since January 2023.
Median household spending growth expectations fell by 0.2 percentage point to 4.9%, the measure’s lowest reading since April 2021.
Perceptions of credit access compared to a year ago deteriorated in July, with the share of households reporting it is harder to obtain credit than one year ago increasing. However, expectations for future credit availability improved in July, with the share of respondents expecting it will be harder to obtain credit in the year-ahead decreasing.
The average perceived probability of missing a minimum debt payment over the next three months increased by 1.0 percentage point to 13.3%, the measure’s highest reading since April 2020. The increase was most pronounced for those with an annual income below $50,000 and those with a high school degree or less education.
The median expectation regarding a year-ahead change in taxes (at current income level) declined by 0.3 percentage point to 4.0%.
Median year-ahead expected growth in government debt was unchanged at 9.3% in July.
The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 0.2 percentage point to 25.1%.
Perceptions about households’ current financial situations compared to a year ago improved slightly in July, with the share of households reporting a better situation compared to a year ago rising. Conversely, year-ahead expectations about households’ financial situations deteriorated in July, with the share of households expecting a worse financial situation in one year from now rising.
The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.1 percentage point to 39.3%.
