And for the first time since May, American consumers got an optimistic jolt to their economic expectations. They cited falling inflation expectations and a bettering outlook on their own job security. The National Association for Business Economists’ latest survey finds that median inflation expectations for the next three years have fallen to 3%. Meanwhile, the five-year expectations fell to 2.6%. That’s a significant reversal in mood as people assess the prospects for their own financial lives with the economy still facing some headwinds.
Even with these uplifting trends, the 2024 food-at-home inflation forecast crept up by 0.4 percentage points to 5.5%. Consumers are indeed feeling more optimistic about the overall economic landscape. This increase could be a cause of concern for escalating costs of living.
The survey showed a significant decrease in one-year-ahead inflation expectations. Since then, they’ve declined by 0.4 percentage points to 3.2% in May. This month’s fall represents the biggest monthly decrease in near-term inflation expectations since November 2022. At the time, inflation-adjusted price increases stalled out further than anticipated following the Federal Reserve’s aggressive efforts to curb inflation.
When it comes to household finances, the survey found progress on multiple fronts. Compared to last spring, respondents reported somewhat improved access to credit and a lower chance of defaulting on debt payments. The mean perceived probability of the nation’s unemployment rate ever rising above its current level fell by 3.3 percentage points. It’s a far cry from where it once stood — 40.8%. That could mean consumers are becoming more confident in their ability to hold onto a job—that’s certainly a good sign.
Though the indicator is a little noisy, perceptions of expected job security improved significantly, with expectations for separation falling by 0.5pp to 14.8%. People were more likely to report believing they would be able to find a new job if they lost their current job. This is indicative of a highly optimistic outlook on the job market.
Household income growth is forecast to increase modestly by 0.1 percentage points, coming in at 2.7%. This jump further raises the collective measure of consumer hopeful enthusiasm captured in the May survey. These advances come at a time of pessimism in the economy, largely caused by tariffs and trade war anxiety. This unfolding drama illustrates the challenges of the current fiscal landscape.