NEW YORK— Results from the December 2016 Survey of Consumer Expectations show that short-term inflation expectations rose significantly from November, while medium-term inflation expectations increased slightly. Labor market expectations generally improved, with an increase in earnings growth and job finding expectations, and a small decline in the perceived probability of losing one’s job. Household finance expectations also improved, showing increases in household income and spending growth and slight improvements in perceptions of credit availability. Expectations about increases in interest rates on savings accounts and in U.S. stock prices rose significantly.
The main findings from the December 2016 Survey are:
Inflation
- Median three-year ahead inflation expectations rose from 2.7% in November to 2.8%. Median year-ahead inflation expectations increased from 2.5% in November to 2.8%. At both horizons, the increase was broad-based across education groups, but strongest among lower-educated respondents.
- Median inflation uncertainty (that is, the uncertainty expressed by respondents regarding future inflation outcomes) increased slightly at both the one-year and the three-year ahead horizons.
- Median home price change expectations rose from 3.1% in November to 3.3%. This increase was most pronounced among respondents under age 60, higher-educated ones and those with household incomes above $100,000.
- The median one-year ahead expected gasoline price change edged up slightly from 4.6% in November to 4.8% in December, but has remained within a fairly narrow range (4.6% - 5.0%) over the last six months. The median expectation for the change in medical care costs declined from 9.6% in November to 9.2%, while the median expected change in gold prices rose again from 2.6% in November to 2.9%, its highest level since June 2014.
Labor Market
- Median year-ahead expected earnings growth rose from 2.0% in November to 2.4%, returning to levels seen during the first half of 2016. Median expected earnings growth rose across all age, education and income groups—except for respondents under age 40. Median year-ahead earnings growth expectations were 2.3% on average over calendar year 2016, slightly below the 2015 average of 2.4%.
- The mean perceived probability of losing one’s job in the next 12 months declined slightly from 16.4% in November to 15.8%. The decline was driven by lower-educated and lower-income workers. This perceived layoff probability has been rising gradually since a series’ low of 12.7% in October 2015. The mean probability of leaving one’s job voluntarily in the next 12 months remained flat at 22.0%.
- The mean perceived probability of finding a job (if one’s current job were lost) rebounded from 53.0% in November to 55.6%, its highest level since January 2016. The increase was widespread across age, education and income groups, but especially pronounced among lower-educated workers.
Household Finance
- Median expected household income growth rose from 2.4% in November to 2.8%, reversing the declining trend seen since August and returning to levels observed over summer 2016. The increase was broad-based across education and income groups but most pronounced among lower-educated and lower-income respondents.
- Median household spending growth expectations rose slightly from 3.6% in November to 3.7%, continuing the rebound observed last month. Annual averages of this measure over the past calendar years have been 4.7% in 2014, 3.7% in 2015, and 3.5% in 2016.
- The median expectation regarding year-ahead change in taxes (at current income level) declined further from an expected increase in taxes of 2.5% in November to 2.4%, reaching a new series’ low. This measure has been on a gradually declining trend since the survey’s inception in June 2013.
- Perceptions of credit access relative to a year ago and expectations regarding year-ahead credit availability both improved slightly from the previous month. The proportion of households expecting it to be easier to obtain credit a year from now rose to 23.4%, returning to levels last seen in December 2014.
- The average perceived probability of missing a minimum debt payment over the next three months declined slightly from 14.9% in November to 14.3%, but remains higher than the 2016 average of 13.3%. The decline was mostly driven by lower-educated respondents.
- The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now (than it is today) increased again from 35.2% in November to 39.4%, reaching a new series’ high. This measure has risen by almost 10 percentage points in the last two months.
- The mean perceived probability that U.S. stock prices will be higher 12 months from now (than they are today) rose from 41.1% in November to 44.6%, also reaching a new series’ high. This measure had previously ranged between 37% and 41.9% over the history of the survey.
About the Survey of Consumer Expectations
The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty in expectations for the main outcomes of interest. Expectations are also available by age, geography, income, education and numeracy.
The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,200 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, our panel allows us to observe the changes in expectations and behavior of the same individuals over time.
The survey is conducted on our behalf by The Demand Institute, a non-profit organization jointly operated by The Conference Board and Nielsen. The sampling frame for the SCE is based on that used for The Conference Board’s Consumer Confidence Survey (CCS). Respondents to the CCS, itself based on a representative national sample drawn from mailing addresses, are invited to join the SCE internet panel.
