The latest data from the Federal Reserve Bank of New York and the University of Michigan reveal a nuanced picture of US consumer sentiment. Despite a dip in consumer sentiment last Friday due to inflation concerns, the October Survey of Consumer Expectations, released today, suggests a more stable outlook with steady inflation rates and a resilient labor market, potentially easing the pace of future interest rate hikes by the Federal Open Market Committee (FOMC).
The Federal Reserve Bank of New York's survey highlighted that one-year inflation expectations have declined to 3.6%, while expectations for five years out also decreased to 2.7%. The three-year median expectation remained unchanged at 3%, indicating a steady view of inflation over a longer-term horizon. This could signal to Fed officials that fewer aggressive rate hikes may be necessary, although Fed Chair Jerome Powell has indicated that increases could still occur if needed.
The survey also pointed out some concerns among consumers, with job security fears showing a slight uptick. The probability of job loss rose to 12.7%, while the job-finding probability registered at 56.6%. Despite this, income expectations were reported at 3.1%, which is above pre-pandemic levels, suggesting that consumers feel relatively positive about their earning potential.
Household spending growth expectations remained constant at 5.3%, reflecting enduring higher spending compared to before the pandemic hit. Additionally, the likelihood of missing a debt payment within the next three months fell to 12%, aligning with pre-Covid-19 norms and indicating improved credit conditions over the past year.
In contrast, last Friday's University of Michigan Consumer Sentiment Index showed a drop in consumer sentiment due to inflation fears, underscoring Fed officials' concerns about potentially worsening expectations and rising long-term inflation projections. However, wage growth expectations experienced only a marginal decline to 2.83%.
Despite some mixed feelings about financial prospects for the coming year, more respondents felt they were financially better off than last year. This sentiment was supported by spending expectations holding at 5.25%, significantly higher than pre-pandemic levels of 3.1%.
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