Today, the NY Fed released its March 2019 Survey of Consumer Expectations, which showed no change in the short-term inflation expectations and a slight increase in medium-term inflation expectations. And while expected earnings and household income expectations improved slightly, in keeping with various consumer confidence surveys, a red flashing alert was noted in regard to home price change expectations which remain at their lowest level on record, suggesting that most Americans do not anticipate any increase in the price of their homes – an asset which has traditionally been an equity piggy bank for America’s middle class – for a long time.
Here are the main findings from the March 2019 survey:
- Median inflation expectations at the one-year horizon remained stable at 2.8% in March, while increasing by 0.1 percentage point to 2.9% at the three-year horizon.
- The median expected change in the cost of gas increased from 4.3% to 4.7% in March, the highest reading since June 2018. The median one-year ahead expected changes in the cost of food, medical care, college education, and rent changed little in March, all staying within 0.1 percentage points of the previous month’s expectations.
And while the median home price change expectations remained steady at 3.0% for the fourth consecutive month, this was the lowest reading of the series, driven mostly by a continued drop in appreciation expectations by those earning over $100,000.
There were notable improvement in the labor market where median one-year ahead earnings growth expectations increased from 2.5% in February to 2.6% in March, the highest reading since September 2018. These expectations, however, varied substantially across demographic groups. In particular, median earnings growth expectations reported by respondents over the age of 60 and respondents with a high school diploma or less actually decreased in March.
Separately, the mean perceived probability of losing one’s job in the next 12 months decreased 0.3 percentage points to 14.3% in March, equal to its 12-month trailing average. This decrease was driven mostly by respondents under the age of 40. Adding to the labor market optimism, the probability of leaving one’s job voluntarily in the next 12 months increased from 21.2% to 21.8%.
A modest cloud on the otherwise blemishless labor market horizon, was the perceived probability of finding a job (if one’s current job was lost) which decreased 0.7 percentage points to 58.6%. And although this is the lowest level since August 2018, it remains close to the series’ high of 60.1% reached in November 2017.
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Finally, the survey found a somewhat mixed picture when it comes to the state of household finance. After declining for three consecutive months, the median expected household income growth rebounded to 2.8%. In contrast, median household spending growth expectations stayed unchanged at 3.1%. At the same time, perceptions of credit access compared to a year ago improved slightly despite the recent contraction in credit availability according to the most recent SLOOS survey.
The proportion of respondents who reported experiencing more difficulties accessing credit declined from 29.8% to 28.9%, while the proportion of those reporting easier access increased from 22.6% to 23.7%. Expectations for year-ahead credit availability also improved slightly in March. The proportion expecting improving conditions in credit access increased from 19.0% to 19.2%, while the proportion expecting worsening conditions in credit access declined from 32.5% to 32.3%.
The next question revealed a concerning development in the economy, as slightly over one in ten Americans believe they will be unable to make their minimum debt payment in the immediate future. Specifically, the percentage of consumers who expect to not be able to make minimum debt payment over the next three months increased 0.7 percentage points to 11.6% in March (however, it remains below its 12-month trailing average of 12.0%).
More concerning is that the fiscal tailwind from the tax cut stimulus is now a distant memory, and the median expected year-ahead change in taxes (at current income level) increased from 2.5% in February to 2.8%, the highest reading since October 2016. The series has been trending upwards since reaching a low of 1.5% in February 2018.
And so, with the average consumer seeing little room for improvement in their personal finances, or any home price appreciation, with many challenged by rising rates, it was no surprise that one-year ahead expectations as well as perceptions about households’ current financial situations deteriorated in March, with slightly lower proportions of respondents expecting to be and feeling better off financially.
Finally, looking at Donald Trump’s favorite indicator, the survey-implied probability that U.S. stock prices will be higher 12 months from now than they are today decreased slightly from 42.0% in February to 41.4% in March, perhaps as a result of stocks approaching their Sept 2018 all time highs.