Consumers Expect Higher Medium Term Inflation and Home Price Growth
NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data released the December 2020 Survey of Consumer Expectations, which shows that median inflation expectations increased at the medium-term horizon, and remained unchanged at the short-term horizon. Uncertainty about future inflation increased slightly, remaining at an elevated level. Median home price change expectations increased sharply to its highest level since July 2018.
The main findings from the December 2020 Survey are:
- Median inflation expectations remained unchanged in December at the one-year horizon at 3.0%. In contrast, median inflation expectations at the three-year horizon increased for the second consecutive month, from 2.8% in November to 3.0% in December, tying the highest reading in 2020 reached in August. The increase was driven by respondents without a college degree. Our measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) declined slightly at the one-year horizon but increased at the three-year horizon to its highest level since May 2020.
- Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at both horizons, remaining well above pre-COVID-19 readings.
- Median home price change expectations, which have been trending upward after reaching a series’ low of 0% in April 2020, increased sharply from 3.0% in November to 3.6% in December, the highest reading since July 2018. The increase was broad based across age groups, income groups, and Census regions.
- The median one-year ahead expected change in the cost of medical care rose from 7.1% to 9.1% in December. Median expectations for changes in the price of gasoline and the cost of rent both increased by 0.2 percentage point, while expected changes in food prices increased by 0.1 percentage point.
- Median one-year ahead expected earnings growth remained unchanged at 2.0% in December, for the fifth consecutive month. The series remains well below its 2019 average of 2.4%.
- Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased from 40.1% in November to 38.9% in December, equal to its trailing 12-month average.
- The mean perceived probability of losing one’s job in the next 12 months increased slightly from 14.6% in November to 15.0% in December, remaining slightly below its December 2019 level of 15.4%. The increase was driven by respondents without a college education. The mean probability of leaving one’s job voluntarily in the next 12 months rose from 16.6% in November to 17.1% in December.
- The mean perceived probability of finding a job (if one’s current job was lost) declined from 47.9% in November to 46.2% in December, the lowest reading since February 2014. The decline was broad based across demographic groups. The series remains well below its 2019 average of 59.9% and its February 2020 level of 58.7%.
- Median expected household income growth increased by 0.1 percentage point to 2.2% in December. Since March, this series has moved within a narrow range of 1.9% to 2.3%, well below its 2019 average of 2.8%.
- Median household spending growth expectations decreased from its recent peak of 3.7% in November to 3.4% in December, the second highest reading in 2020.
- Expectations for year-ahead credit availability remained largely unchanged in December, with slightly smaller shares of respondents expecting credit to be easier and more difficult to obtain.
- The average perceived probability of missing a minimum debt payment over the next three months decreased from 10.9% in November to 10.5% in December, remaining below its 2019 average of 11.5%.
- The median expectation regarding a year-ahead change in taxes (at current income level) increased from the already elevated level of 4.1% in November to 4.3% in December, its highest reading since November 2013.
- The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now rose from 24.8% in November to 26.2% in December, the second consecutive increase since reaching a series low in October 2020.
- While perceptions about households’ current financial situations compared to a year ago were largely unchanged, one-year ahead expectations about households’ financial situations improved slightly with more respondents expecting their financial situation to improve over the next year.
- The mean perceived probability that U.S. stock prices will be higher 12 months from now remained unchanged in December at 38.5%, the lowest reading in 2020.
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.
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