NY Fed: Pessimism Creeping into Consumer Expectations

--Three-Year Ahead Infl Expectations Increase; One-Year Ahead is Unchanged

--Expected Household Spending and Earnings Falls

--Labor Market Expectations Mixed as Earnings Fall But Ability to Find Job Rises

By Holly Stokes

     WASHINGTON (MNI) - Consumers are reported to have increased pessimism in

regards to expectations about earnings, spending, financial situations, and the

stock market, the NY Federal Reserve's Consumer Expectations survey released

Tuesday showed. 

     Consumers' one-year ahead inflation expectations remained unchanged at

2.5%, but increased from 2.6% to 2.8% for the three-year ahead. Further on 

inflation expectations, median home price change expectations fell to 3.0% - its

lowest since March 2016, and expectations for changes in the cost of college

dropped to 5.9% - just above the series low of 5.8% in May 2016. However,

one-year ahead gas price change expectations increased to 4.7%. 

     Confidence in earnings expectations dwindled, as the median one-year ahead

earnings growth expectations slipped from 2.5% to 2.3% - the second consecutive

drop since July. The median expectations for household income growth also fell,

from 2.7% to 2.2% - the lowest level since February 2014 and significantly down

from July's series high of 3.0%. Accordingly, the median household spending

growth expectations also dropped to 2.7% from 3.0%. All of these declines were

driven by younger and lower-educated respondents, which the survey defines as

under age 40 and with a high school degree or less. 

     The September survey also showed that less respondents felt they were

better off financially compared to a year ago, slipping from August's 32.6% to

32.3%. This pessimism in regards to financial situations also carried into

future expectations, with a decline from 42.3% to 40.3% of those surveyed

believing they will be better off financially a year from now.

     Consumers also showed lackluster confidence in other areas of household

finance. Expectations for US stock prices to be higher one year from now fell to

42.0%, and expectations for one year growth in government debt increased to 5.7%

- its highest since November 2016. Additionally, expectations that the average

interest rate on savings accounts would higher one year from new fell to 33.8%. 

     This pessimism also surfaced in respondent's attitude towards debt

repayment. The perceived probability of missing minimum debt payment over the

next three months increased for the third month in a row. 

     While survey responses showed a diminishing strength in expectations for

earnings and financial situation improvement, respondents were more mixed in

terms of employment prospects. 

     The mean perceived probability of losing one's job in the next 12 months

remained unchanged at 13.8%, while the probability of leaving voluntarily

slipped slightly to 20.6%. However, respondents showed increased confidence in

being able to find a new job, climbing to 59.2% - just below March 2017's series

high of 59.3%. 

     Despite rising confidence in the ability to find a new job, the mean

unemployment expectation, or "the probability that the U.S. unemployment rate

will be higher one year from now," slid up to 35.7%. These responses amidst

pessimistic earnings expectations, reflect uncertainty of the effect and

sustainability of a tightening labor market. 

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

[TOPICS: MMUFE$,M$U$$$]