NEW YORK—The Federal Reserve Bank of New York's Center for Microeconomic Data released the May 2021 Survey of Consumer Expectations, which shows that households' expectations about year-ahead inflation, home price and rent price changes, earnings, income, and spending growth all increased in May. Medium-term inflation expectation grew more modestly, while inflation uncertainty increased sharply at both horizons. Labor market expectations improved, with unemployment and the probability of losing one's job both reaching series lows, while earning expectations and the probability of finding a job increased sharply.
The main findings from the May 2021 Survey are:
Inflation
- Median one-year-ahead inflation expectations increased by 0.6 percentage point in May to 4.0%, the seventh consecutive monthly increase and a new series high. Median inflation expectations at the three-year horizon increased from 3.1% to 3.6%, the second-highest level in this series, behind only the reading from August 2013. The increase at both horizons is particularly pronounced among respondents age 60 and over and among those with a high school degree or less. Notably, medium-term inflation expectations have increased at a slower pace than short-term inflation expectations over the past few months, and the difference between one- and three-year-ahead median inflation expectations (0.4 percentage point) marks a series high. Our measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) was unchanged at the three-year horizon but rose sharply at the one-year horizon due to a strong increase in the 75th percentile. Both measures of short- and medium-term inflation disagreement remain elevated compared to their pre-COVID-19 levels.
- Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased sharply at the short- and medium-term horizons. Both measures are well above the levels observed before the outbreak of COVID-19.
- Median year-ahead home price change expectations increased by 0.7 percentage point to 6.2%, substantially above the 2020 average of 2.3% and marking a third consecutive month with a new series high. The May increase was driven mostly by respondents who live in the “West” and “South” Census regions.
- Expectations about year-ahead price changes increased for all commodities in May. The median one-year-ahead expected change in the price of food and rent increased by 2.2 and 0.3 percentage points, respectively, to new series highs of 8.0% and 9.7%. The median one-year-ahead expected change in the price of gas and in the cost of medical care rebounded by 0.6 and 0.3 percentage point, respectively, to 9.8% and 9.4%. Finally, the median one-year-ahead expected change in the cost of a college education increased by 0.2 percentage point to 6.1%.*
Labor Market
- After remaining mostly stable since July 2020, median one-year-ahead expected earnings growth rose 0.4 percentage point in May to 2.5%, returning close to its pre-COVID-19 level. The increase was driven mostly by respondents with low educational attainment (no more than a high school degree).
- Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased to a series low of 31.9% in May, from 34.6% in April.
- The mean perceived probability of losing one's job in the next 12 months also decreased to a series low in May, dropping to 12.6%, from 15.0% in April. The decrease was more pronounced among respondents below the age of 40, those with less than $50,000 in household income, and those with no more than a high school degree. The mean probability of leaving one's job voluntarily in the next 12 months also decreased to 18.7% from 19.1%. The decrease was more pronounced among respondents above the age of 60 and those with a high school degree but no college diploma.
- The mean perceived probability of finding a job (if one's current job was lost) rose sharply, to 54.0%, from 49.8% in April. This is the largest month-to-month increase in the series and the highest level since February 2020. The increase was more pronounced among respondents below the age of 60, those with no more than a high school degree, and those with household income below $50,000. Despite the increase, the May reading remains below pre-pandemic levels.
Household Finance
- The median expected growth in household income increased by 0.4 percentage point to 2.8% in May, the highest level since January 2020. The increase was driven mostly by respondents with high household income (above $100,000).
- Median household spending growth expectations rose to a series high of 5.0% in May, from 4.6% in April. The increase was broad-based but more pronounced among respondents with annual household income of more than $100,000.
- Perceptions of credit access compared to a year ago improved, with more respondents finding it easier to obtain credit now than a year ago. In contrast, expectations about future credit availability deteriorated slightly, with more respondents expecting it will be harder to obtain credit in the year ahead.
- The average perceived probability of missing a minimum debt payment over the next three months declined by 0.3 percentage point, to 9.7%, which is below the 12-month trailing average of 10.3%.
- The median expectation regarding a year-ahead change in taxes (at current income level) increased by 0.3 percentage point, to a series high of 4.7%.
- Median year-ahead expected growth in government debt increased to 16.4%, from 14.4% in April.
- The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased to 29.3%, from 28.7% in April.
- Perceptions about households' current financial situations compared to a year ago deteriorated slightly in May, with more respondents reporting being financially worse off than they were a year ago. Respondents were also more pessimistic about their households' financial situations in the year ahead, with fewer respondents expecting their financial situation to improve a year from now.
- The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased by 1.6 percentage points, to 40.8%.
About the Survey of Consumer Expectations (SCE)
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 regarding consumers' outlooks. 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 1,300 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.
* Due to a data recording error in the “one-year ahead commodity price change expectations” series, the data for this series has been revised going back to October 2020.
