3-Year US Inflation Expectations Drop to Series Low: NY Fed — Evening Brief – 08.12.24
U.S. consumers’ inflation expectations at the medium-term horizon were substantially reduced, while their short- and longer-term expectations remained stable, the Federal Reserve Bank of New York reported in its July Survey of Consumer Expectations.
The median 1- and 5-year inflation expectations remained unchanged at 3.0% and 2.8%, respectively. However, the 3-year inflation expectations decreased by 0.6% to 2.3%, marking a new series low since the survey’s inception in June 2013.
The decline in 3-year inflation expectations 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 horizons and was unchanged at the three-year horizon.
In July, the median home price growth expectations remained at 3.0%, while year-ahead commodity price expectations decreased by 0.8 percentage points to 3.5% for gas and 0.1 percentage point to 4.7% for food. However, the cost of medical care rose by 0.2 percentage points to 7.6%, the cost of college education rose by 1.9 percentage points to 7.2%, and the cost of rent rose by 0.6 percentage points to 7.1%.
In the job market, optimism faded as the median one-year-ahead predicted earnings increase fell by 0.3% to 2.7% in July. Since January 2024, the series has moved in a narrow range of 2.7% to 3.0%.
Meanwhile, mean unemployment expectations, or the possibility that the US unemployment rate would be higher one year from now, fell by 1.0 percentage point to 36.6%, remaining below the 12-month trailing average of 37.7%.
A promising surprise is that the mean perceived probability of losing a job in the next 12 months fell by 0.5% points to 14.3%, even though the real unemployment rate increased last month, triggering the Sahm’s Rule, which has preceded every recorded recession.
Furthermore, the mean probability of leaving one’s employment willingly in the following 12 months rose by 0.2 percentage points to 20.7%, the highest level since February 2023. The mean perceived probability of getting a job (if one’s current employment was lost) fell by 0.9 percentage points to 52.5%.
Perceptions of credit access deteriorated compared to a year ago, with more households indicating that it is more difficult to obtain credit than a year ago. However, estimates for future credit availability improved in July, with fewer respondents believing it will be more difficult to obtain credit in the coming year.
Delinquency expectations grew, with the average projected probability of missing a minimum debt payment over the next three months rising by 1.0 percentage point to 13.3%, the highest level since April 2020.