The Federal Reserve Bank of New York released the July 2023 Survey of Consumer Expectations, which shows that consumers’ inflation expectations declined at all horizons. The survey, which is based on a nationally representative panel of about 1,300 households, measures consumers’ expectations and uncertainty about various economic outcomes.
According to the survey, median inflation expectations fell from 3.8% to 3.5% at the one-year-ahead horizon and from 3.0% to 2.9% at both the three-year and five-year-ahead horizons. The decline at the one-year-ahead horizon was broad based across demographic groups and the July reading is the lowest since April 2021.
The survey also shows that consumers’ inflation uncertainty decreased slightly at the one-year-ahead horizon and increased slightly at the three- and five-year-ahead horizons. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at all three horizons.
Consumers Expect Lower Price Growth for Food, Gas, and Rent
The survey reveals that consumers expect lower price growth for several commodities in the next year. Median year-ahead expected price changes declined for all commodities: by 0.2 percentage point for gas (to 4.5%), 0.1 percentage point for food (to 5.2%), 0.9 percentage point for medical care (to 8.4%), 0.3 percentage point for the cost of a college education (to 8.0%), and 0.4 percentage point for rent (to 9.0%). The current readings for food, medical care, and rent are the lowest since September 2020, November 2020, and January 2021, respectively.
Median home price growth expectations also decreased from 2.9% in June to 2.8% in July, remaining well above the series 12-month trailing average of 2.0%. The decline in home price growth expectations was more pronounced in the Northeast and Midwest regions.
Consumers Have More Positive Outlook on Labor Market and Financial Situation
The survey indicates that consumers have more positive outlook on the labor market and their financial situation. Mean unemployment expectations (the mean probability that the U.S. unemployment rate will be higher one year from now) decreased by 1.0 percentage point to 36.7%, the lowest reading since April 2022.
The mean perceived probability of losing one’s job in the next 12 months decreased by 1.1 percentage points to 11.8%. The mean probability of leaving one’s job voluntarily in the next 12 months decreased by 1.9 percentage point, to 17.0%, its lowest reading since March 2021.
The mean perceived probability of finding a job (if one’s current job was lost) increased from 55.3% in June to 55.8% in July.
Median one-year-ahead expected earnings growth decreased by 0.2 percentage point to 2.8%. The series has been moving within a narrow range of 2.8% to 3.0% since September 2021.
Consumers’ perceptions about their current financial situations and expectations for the future improved in July. The proportion of respondents who reported that their financial situation is worse than a year ago decreased from 29% in June to 27% in July, while the proportion who reported that their financial situation is better than a year ago increased from 24% in June to 26% in July.
The proportion of respondents who expect their financial situation to improve over the next year increased from 38% in June to 40% in July, while the proportion who expect their financial situation to worsen over the next year decreased from 13% in June to 11% in July.
