June 2022 NY Fed Survey of Consumer Expectations - "Inflation Expectations Increase at Short Term, But Decline at Medium and Longer Terms; Home Price Growth Expectations Decline Sharply"

Also falling were spending, income, and credit metrics but most remain better than pre-pandemic levels

June 2022 NY Fed Survey of Consumer Expectations - "Inflation Expectations Increase at Short Term, But Decline at Medium and Longer Terms; Home Price Growth Expectations Decline Sharply" 

Survey of Consumer Expectations - FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)

The June 2022 NY Fed's Survey of Consumer Expectations provided a mixed read on what has now become the market’s latest obsession, inflation expectations, with 1-year inflation expectations continuing to push higher but longer term inflation expectations falling back. Expectations for home price growth also fell sharply. And we also saw softening (from elevated levels) for spending intentions (from a series high), credit access perceptions and households' perceptions and expectations for current and future financial conditions. The one thing that continues to hold up is labor market expectations although even those deteriorated a little. Importantly, though, most of these metrics, while softening from May, remain better than pre-pandemic levels (credit access a notable outlier despite the big increase this year in consumer credit levels).

Looking more specifically, 1-year inflation expectations, which had climbed to a new record of 6.6% in March moved to a new record high of 6.8% in June. In contrast, median three-year ahead inflation expectations decreased to 3.6% from 3.9%. The increase in short-term expectations was driven by respondents over age 60 and respondents with at least some college education. Median five-year ahead inflation expectations, which have been elicited in the monthly SCE core survey on an ad-hoc basis since the beginning of this year, declined to 2.8% from 2.9%. After being stable at 3.0% during the first three months of the year, the series has trended down slightly.

Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at the one-year ahead horizon to a new series high, but remained unchanged at the three-year ahead horizon. Uncertainty at the five-year ahead horizon increased

The median expected change in home prices one year from now dropped sharply to 4.4% from 5.8%. This is the lowest reading of the series since February 2021. The decline, the second largest recorded in the survey's series only to the sharp drop at the onset of the pandemic, was broad based across age, education, and income groups. The decline was largest in the West census region.

Expectations for inflation in other areas remained elevated - “Expectations about year-ahead price changes increased by 0.1 percentage point for gas (to 5.6%), rent (to 10.3%), medical care (to 9.5%), and college education (to 8.7%). The median one-year-ahead expected change in the price of food decreased by 0.1 percentage point to 9.2%.”

As noted above, we saw decelerations in spending intentions, credit access and financial situations. On the first, spending expectations, which had hit a new series high in May, it retreated by 0.6 percentage point to 8.4% but remained well above its 2021 average of 5.0%. The decline was the first this year and driven by respondents over age 40, those without any college education, and those with annual household incomes under $50k.

Perceptions of credit access compared to a year ago continued to deteriorate in June for a sixth consecutive month, with the share of respondents finding it harder to obtain credit now than a year ago reaching a series high. Expectations about future credit availability deteriorated as well, with more respondents expecting that it will be harder to obtain credit in the year ahead.

Perceptions about households' current financial situations compared to a year ago deteriorated in June, with more respondents reporting being financially worse off than they were a year ago. Respondents were also more pessimistic about their household's financial situation in the year ahead, with fewer (more) respondents expecting their financial situation to improve (deteriorate) a year from now. The average perceived probability of missing a minimum debt payment over the next three months increased by 0.2 percentage point to 11.3%. This is the highest reading of the series since May 2020, and comparable to its pre-pandemic level of 11.4% in February 2020.

More positively, the median expected growth in household income increased by 0.2 percentage point in June to 3.2%. The increase was broad based across education groups.  Median one-year-ahead expected earnings growth remained unchanged at 3.0% in June for the sixth consecutive month. But the mean perceived probability of losing one's job in the next 12 months rose to 11.9% from 11.1%, although it remains well below its pre-pandemic reading of 13.8% in February 2020. The mean probability of leaving one's job voluntarily in the next 12 months declined to 18.6%, from 20.3% in May, remaining well below the pre-pandemic reading of 22.2% in February 2020 which is interesting considering quits are much higher than in February 2020. The mean perceived probability of finding a job in the next three months (if one's current job was lost) declined to 56.8% from 58.2%, but remains slightly above its 12-month trailing average of 56.2%.

Looking at more economy-wide indicators, the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 1.8 percentage points to 40.4%, its highest level since April 2020. The increase was driven by respondents with annual household incomes over $50k. The mean perceived probability of finding a job in the next three months (if one's current job was lost) declined to 56.8% from 58.2%, but remains slightly above its 12-month trailing average of 56.2%. The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased to 33.8% from 36.2%.

Overall, this report has consistently been more encouraging than most of the other sentiment surveys, but we got a little softening this month on more indicators. Still, in term of overall levels, spending, earnings growth, and labor market indicators all remain better than pre-pandemic levels, in some cases much better. Household financial conditions are also in good shape overall, and it’s good to see longer term inflation expectations coming down. So all in all, I’ll take it, especially in comparison to the UofM report we’ll get Friday.

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