US consumers’ one-year inflation expectations rise to 3.9%, hitting a three-year high, while confidence in the labor market improves

According to a survey released by the New York Fed on Wednesday, U.S. consumers' short-term inflation expectations rose markedly last month, while their outlook on the job market improved.

The New York Fed's monthly “Survey of Consumer Expectations” showed that the median expectation for the inflation rate over the next year increased to 3.9% in September from 3.6% in August, reaching the highest level since May 2023. At the same time, consumers’ views on the labor market improved, including a perceived lower probability of losing their jobs and a higher likelihood of voluntarily quitting.

This data comes less than a month before the November midterm elections. The New York Fed’s latest survey further indicates that American consumers’ pessimism about the economy persists, despite continued economic expansion. Other recently released data shows that consumer confidence in September fell to a four-month low, and the jobless rate edged up slightly, though it remains near historic lows.

The survey released on Wednesday also showed that the median inflation expectation for the next three years inched up from 3.2% in August to 3.3%, while the median expectation for inflation over the next five years remained unchanged at 3%.

Federal Reserve officials raised the benchmark interest rate by 25 basis points in September. Some policymakers stated that this decision bought the central bank time to assess economic conditions. The next Federal Reserve policy meeting will be held in Washington from October 27 to 28.

Improved Job Market Expectations

Although inflation remains high, U.S. households’ views on the labor market have improved.

The proportion of respondents expecting the overall unemployment rate to rise in the next year fell to around 44%. If they lose their current job, consumers believe their probability of finding a new job within the next three months rose to 46%.

Consumers’ expectations of losing their jobs over the next year also declined, with the most significant improvements among those aged 40 to 60 and households with annual incomes above $100,000. Meanwhile, the likelihood of consumers voluntarily quitting their jobs also increased, especially among those without a bachelor’s degree and workers over 40.

Federal Reserve officials have long said that the U.S. labor market is in a “low layoffs, low hiring” balanced state. In September, the U.S. unemployment rate rose to 4.2%, businesses added fewer jobs, and the average time for the unemployed to find a new job reached six months.

Personal Financial Pressure, but Some Willingness to Spend Remains

The New York Fed survey showed that views on personal financial situations worsened for a second consecutive month. About 42% of households said their current financial situation was “significantly worse” or “somewhat worse” than a year ago, while only about 18% reported improvement.

In addition, the proportion of households expecting their financial situation to worsen in the coming year also increased, with more consumers believing it is now harder to obtain credit compared to a year ago.

However, there are also signs that consumers are still trying to maintain spending. Consumers expect the growth rate of spending over the next year to rise to the highest level since May 2023, and this upward trend covers groups with various ages and educational backgrounds.

Consumers still expect the growth rate of spending in the coming year to outpace income growth. Meanwhile, consumers think the probability of being unable to make debt payments on time in the next three months slipped slightly to 12%.