Most Americans believe the economy should be in fairly good shape this time next year

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Consumers remained positive about their household income, spending habits and inflation trends in October, according to the New York Federal Reserve’s latest survey of consumer expectations.

Minneapolis
CNN
—

New survey data released Monday by the Federal Reserve Bank of New York showed that U.S. consumers believe inflation will continue to ease, the job market will remain strong and they will continue to spend more than before the pandemic.

The October survey of consumer expectations painted a far more positive picture than the New York Fed survey a month earlier, when consumers were just as worried about not making the minimum debt payment as they were during the early stages of the Covid-19 pandemic.

In October, the average perceived likelihood of missing a minimum debt payment fell to 11.99%, matching a June measurement and well within pre-pandemic ranges.

Consumer expectations for inflation in one year and in five years each fell 0.1 percentage points compared to the previous month and stand at 3.6% and 2.7%, respectively.

However, average three-year inflation expectations remained unchanged at 3%, an annual high.

The Federal Reserve closely monitors consumers’ inflation expectations because they can be a self-fulfilling prophecy: If consumers expect prices to remain high, they may spend more now and demand higher wages, and companies may raise prices to accommodate that to meet higher demand and higher wages.

Lately, Fed officials have become nervous about worsening expectations. On Friday, the University of Michigan’s closely watched consumer survey showed that sentiment about the current economic situation is weakening and that long-term inflation expectations are rising.

On the earnings side, consumer expectations for wage growth fell 0.2 percentage points to 2.83%, which is at the lower end of the 2.8% to 3% range observed since September 2021.

And while the average likelihood of consumers losing their job next year has increased slightly to 12.7%, they also expect the country’s unemployment rate to be lower and their chances of finding another job to improve slightly improved to 56.6%.

The median expected growth in household income rose by a tenth of a percentage point to 3.1%. In February 2020, the expected growth was 2.7%.

Spending expectations, which stood at 5.25%, have declined slightly from their peak of 9% in May 2022. However, they are still well above the pre-pandemic level of 3.1%.

Overall, more respondents to the New York Fed survey said their households were doing better than this time last year. For the coming year, the picture was somewhat more mixed: almost the same number of consumers were convinced that they would be either better off or worse off financially than they are now.