Americans’ expectations for inflation in the short-term jumped last month while their sentiment toward the labor market improved, according to a Federal Reserve Bank of New York survey released Wednesday.
Consumers’ estimates for inflation one-year ahead rose to a median 3.9% in September, up from 3.6% the prior month and reaching the highest level since May of 2023. Views on the labor market, however, improved as workers saw a lower probability of losing their jobs and higher odds of voluntarily quitting, according to the New York Fed’s monthly Survey of Consumer Expectations.
Released less than a month away from the November mid-term elections, the New York Fed data is the latest survey highlighting Americans’ persistent pessimism around an economy that’s still expanding. Separate data released in recent weeks showed that consumer sentiment fell to a four-month low in September and the unemployment rate rose slightly but remained historically low.
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Wednesday’s report also showed consumers’ expectations for price increases three years ahead ticked up to a median 3.3% from 3.2% in August, while median estimates for inflation five years ahead stayed unchanged at 3%.
Fed officials lifted their benchmark rate by a quarter point in September, a decision some policymakers said buys time for the central bank to assess the economy. Policymakers are scheduled to meet next on October 27-28 in Washington.
Improving Labor Outlook
Despite high inflation, households’ views about the labor market improved. The proportion of respondents expecting the overall unemployment rate to rise in the next year fell to around 44%. Their perceived chances of finding a new role in the next three months if they lost their current job increased to 46%.
Consumers’ expectations of losing their jobs in the next year fell, with the outlook improving the most for workers between 40 and 60 years old and with annual household incomes above $100,000. Chances of leaving a post voluntarily also rose, especially among workers without a bachelor’s degree and above 40 years old.
Fed officials have for some time said the labor market is in a low-fire, low-hire balance. In September, the unemployment rate rose to 4.2% as companies added fewer workers and out-of-work Americans spent six months on average looking for a job.
The New York Fed survey showed consumers’ perceptions of their own finances worsened for the second straight month. Around 42% of households said their situation is much or somewhat worse than a year ago, while around 18% said it had improved. More households also said they expected their financial outcomes to worsen in the year ahead, and more consumers now say it’s harder to get credit than it was a year ago.
Still, there are signs consumers are finding ways to keep their wallets open. Expected spending growth for the year ahead rose to the highest since May 2023, an increase that was broad-based across age and education groups. Consumers continue to expect their spending growth to outpace their income growth. At the same time, perceived chances of missing a debt payment over the next three months fell slightly to 12%.